Kuaishou Technology

HKEX:1024

Q1-2025 Earnings Call

[Operator]

Ladies and gentlemen, welcome to Kuaishou Technology First Quarter 2025 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided from management's prepared remarks. This English line will be in listen-only mode.

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

[Huaxia Zhao, executive]

Thank you, operator. Good evening, and good morning to everyone. Welcome to Kuaishou Technology First Quarter 2025 Financial Results Conference Call. Joining us today are Mr. Yixiao Cheng, Co-Founder, Chairman and CEO; and Mr. Bing Jin, Chief Financial Officer. Before we start, please note that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ from those discussed.

The company does not undertake any obligation to update any forward-looking information, except as required by law. All important information about this call including forward-looking statements, please refer to the company's public information or the First Quarter 2025 results announcement call March 2025 issued earlier today. During today's call, management will also discuss certain non-IFRS financial measures. These are provided for additional information and should not replace the IFRS-based financial results for a definition of non-IFRS financial measures, or reconciliation of IFRS to non-IFRS financial results and related to risk factors please refer to our First Quarter 2025 results announcement.

For today's call, management will use Chinese as the main language. A third-party interpreter will provide some English interpretation in the prepared remarks session and consecutive interpretation during the Q&A session. Please know that English interpretation is for convenience purpose only. In case of any discrepancy, management statements in their original language will prevail. Lastly, unless otherwise stated, all currency and mentioned are in RMB. I will hand the call over to Yixiao.

[Yixiao Cheng, executive]

Hello, everyone. Welcome to Kuaishou Q1 2025 Earnings Conference Call. In Q1, despite a complex and evolving global macro environment, we achieved a solid financial performance through the continued integration of AI technology across our businesses. These intelligent upgrades have strengthen those are content and business ecosystem across our platform users and content creators enjoy better experience and merchants online marketing clients operational efficiency improved.

As a result, our average DAUs on the Kuaishou app reached a record high of 408 million in Q1. Our total revenue grew by 10.9% year-over-year to RMB 32.6 billion. GP margin approached 55%. Adjusted net profit reached RMB 4.6 billion with a 14% adjusted net margin.

Our new businesses have continued to deliver promising results, demonstrating strong momentum for a second growth curve. Kling AI intent to global leadership in advanced technology while accelerating use of commercialization, generating over RMB 150 million in revenue in Q1. Our strategic focus on core international markets is also beginning to yield tangible results for our overseas business up to 2 years of execution, our overseas business delivered its first ever quarter of operating profit in Q1 with steadily increasing revenue growth. Next, I'd like to elaborate on how the progress of our key business segments in Q1.

First, AI strategy. Kling AI will continue to advance the quality and effectiveness of our large video generation models while launching more innovative features to meet a diverse range of user needs. In April, we launched a Kling AI 2.0 video generation model, marking a significant upgrade to the large model and its global debut and setting new global benchmarks in motion quality, semantic responsiveness and visual aesthetics. This latest version also marked the official debut of our breakthrough concept of interaction, multi-module visual language. Building on this foundation, we introduced a multi-module editing feature that allows users to combine various inputs such as images, videos, voice and motion parts to produce customized views that better reflect their creative intent.

Creators can also add, remove or replace visual elements in generated videos by using image or text props, giving them greater creative control throughout the editing process. Kling AI's relentless pursuit of the state-of-the-art large model video generation technology and performance has earned it widespread recognition from subscribers and corporate clients around the world, contributing to rapid revenue growth. In Q1 alone, revenue from Kling AI reached RMB 150 million. Today, Kling AI is being used across a range of industries from advertising to marketing, field, animation for place. This growing adoption reinforces our belief that Kling has the potential to become the foundational infrastructure.

We have integrated AI technology across our businesses, embedding AI capabilities for our content and business ecosystems. Large models have deepened our understanding of content and user interest, allowing us to precisely match user demand with content value. In turn, this increased user time spent and activity on our platform. AI technology is also embedded across our online marketing solutions. AGC marketing material production, marketing placement agent, large marketing recommendation models and large bidding inference models have all improved and boosted our clients' marketing conversion efficiency.

In Q1, average daily advertising spending on AGC marketing materials remained 30 million. We also introduced a real-time interaction feature for our digital human live streaming rooms, which led to an increase in conversion rates. In the e-commerce scenario, we heightened matching accuracy between users and merchandise based on large model structured understanding of product attributes. -- tools like AI intelligent customer service, try-on, smart product presentation fortified e-commerce merchants marketing capabilities, reducing their operating costs and amplifying operational efficiency.

Second, user growth and content ecosystem. In Q1, average DAUs on Kuaishou app reached 408 million and MAU 712 million. up by 3.6% and 2.1% year-over-year, respectively. Average DAUs on Kuaishou App set a new record, exceeding 400 million for the third consecutive quarter. The average daily time spent per DAU on Kuaishou App was 133.8 minutes, while total user time spent rose by 5.9% year-on-year in Q1. Our refined user growth strategy lowered average user acquisition costs. For example, we increased the users' rate of opening the app by optimizing their push strategy and product form among other measures. On top of that, with the steady rich high-quality content, ongoing improvements to our traffic distribution system and diverse community features, we elevated content consumption experience.

With a better user retention rate. Chinese New Year has always been a key period for user growth and brand marketing for the 2025 Chinese New Year holiday, we created a festive online celebration for our 400 million users, offering engaging interactive features and extensive content matrix. Interactive elements effectively spark the greater social interactions across our platform. During the campaign, the pairs of average daily new mutual followers soared by over 40% and the number of active daily private methods among users with mutual followers grew by 1%. Our extensive Chinese dealers content lineup, including online festive fairs, Kuaishou Spring Festival Gala, Leiaoming TV Supreme Festival Gala delivered deeply immersive content consumption experience.

The content generated over 50 billion live streaming views and over 200 billion short video views with focus on Kuaishou traditional stronghold in Northeast China and through a series of events such as the Kuaishou Winter Olympics, Li Logan Grand stage and the Northeast Comedy Show. We also entered the penetration of characteristic native content and its influence in dominant region. In sports, we entered a new phase of strategic collaboration with NBA China, continuing to be an official short video platform and video content creation community for NBA China. Together, we're building a diversified content matrix, including short videos of game recaps, NBA variety shows and micro short plays and interactive live streaming programs with NBA stars, bring users more engaging content interaction.

Third, online marketing services. In Q1, revenue from online marketing services grew 8% year-on-year to RMB 18 billion by integrating AI across our online marketing solutions, we enable clients from content consumption, e-commerce, local leads and other sectors to improve their brand marketing efficiency and achieve better conversion outcomes. This in turn led to more budgets from marketing clients. We also apply large language models, contenting and reasoning capabilities to improve the results of our marketing content recommendations with combined off-channel reasoning based on user behavior.

This enhancement further improved the conversion efficiency of marketing materials. In Q1, external marketing services remain a primary growth driver for online marketing services with particularly strong contributions from the content consumption and the local service sectors. For the content consumption sector, marketing spending from short plays experienced a strong year-on-year growth. We encourage marketing clients to align their campaigns with native and platform content operations such as short plays, many games and novels, which increase the content value and foster user stickiness while also deepening the platform's entertaining of user preference.

For the local service sector, we provided solutions and algorithm optimizations that were better aligned with customers' various needs. For example, we offer multiple lead-based solutions, including native private messaging and lead form collection, helping them to reach customers and improve conversion rate. In Q1, marketing spending from local service industry jumped over 50% year-on-year. In terms of intelligent product placement solutions, the penetration rate of UAS placement solutions continue to rise, making up more than 60% of total external marketing spend in Q1.

Additionally, we actively explore and refine our closed-loop marketing solutions to support e-commerce merchants in building more intelligent omni-domain operations on Kuaishou, hardening their operational effectiveness. In the panel-based e-commerce segment, we introduced merchants high-quality content and products through optimized marketing placement sales funnels and our enhanced algorithm strategies to improve matching efficiency. These endeavors increased merchants marketing budgets in terms of intelligent efficiency enhancement -- our omni platform marketing agent 4.0 delivered greater stability in merchants omni-domain ad placements, offering a richer variety of control tools and enabling more convenient operations.

In Q1, e-commerce merchants using the omniplatform marketing Agent 4.0 smart hosting products contributed 6% of total closed-loop marketing spending. Fourth, e-commerce business. In Q1, e-commerce GMV grew by 15.4% year-on-year to RMB 332.3 billion with a number of e-commerce monthly average active paying user reaching 135 million. We continue to optimize consumer shopping experience. We empower more merchants and KOLs to expand our operations on Kuaishou capitalizing on omniomain synergies between content-based scenarios and penhelf-based e-commerce. In Q1, small- and medium-sized merchants on Kuaishou grew rapidly, mainly driven by our ongoing efforts to enhance support for the new merchants and application of large models across various scenarios.

The number of newly onboard merchants rose by over 30% year-on-year in Q1, benefiting from early-stage traffic support and a series of cost reduction policies for new merchants. Moreover, we continue to align incentives and subsidy options to merchants' key growth cycles. In particular, we launched 5 major programs, including fast-track access, targeted promotions, subsidy incentives and more to assist exports restricted companies to tap into the domestic market.

At the same time, we advanced the use of AI large models across the merchants operations. In Q1, we provided live streaming merchants with a full set of intelligent streaming tools, including AI-generated scripts, prescription prompters, smart audio commentary and intelligent product selection. The adoption of these tools has helped more merchants achieve operational breakthroughs. In Q1, we advanced our KOL e-commerce by establishing dedicated merchandise operation centers to support KOLs in distributing high-quality products at a greater scale, further strengthening our control over merchandise selection and supply.

We also deployed KOL and operational resources across our platform to engage socialized brands through structured platform endorsed groups. During the Chinese New Year shopping season, we launched a new Year blockbuster initiative to focus on high-demand product categories and integrate platform-wide selling capabilities by introducing premium products at competitive prices. We also fortified the price advantage of individual items by providing subsidies on top of the affordable prices, helping KOLs enrich the product selection in their last ring rooms, lowering the threshold of order placement conversion and increasing sales.

For small and medium-sized KOLs, we supported their efficient growth through initiatives like our Rising Star initiative. By offering traffic initiatives, cash support and city level operation support, we successfully expanded our medium-tier KOL base. During the Women's Day promotion day, GMV from KOLs rose by 30% and the GMV from small- and medium-sized KOLs surged by over 50% on a year-on-year basis. In terms of diversified scenarios, we continue to enhance our 3-in-1 business model that combines live streaming, shopping mall and short video.

In Q1, p1helf-based e-commerce GMV once again outperformed overall GMV growth, accounting for about 30% of the total e-commerce GMV with steady improvements on both the supply and demand side. In Q1, average daily active merchants grew by over 40% year-on-year, driven by our proactive efforts to tap into industrial zones to attract quality merchants, enrich our supply base and broaden our product selection. We also benefited from enhanced traffic support across recommendations, search channels and stores.

During the Women's Day promotion, penhelf-based e-commerce GMV and search induced e-commerce GMV soared by 51% and 108% year-on-year, respectively. Short video e-commerce GMV also saw strong momentum, increased over 40% year-on-year as we made e-commerce content more expressive and engaging by embedding short video into live streaming. The synergy between the short video display advantage and live streaming high conversion efficiency increased content diversity and drove more efficient user conversion. Furthermore, our large model expertise has elevated the overall service capabilities of e-commerce merchants.

By utilizing large model agent technology and multimodule capabilities, the resolution rate of our intelligent customer service increased to 80% in Q1. This lowered merchant costs and shortened the average response time, improving the overall user experience. Our AI capabilities continue to upgrade our e-commerce infrastructure. AI has deepened intelligent applications in product information construction, recommendation algorithm optimization and content creation tools, strengthening the customer product matching and simplifying content production for merchants.

And these advancements injected incremental momentum into our e-commerce system. Next, regarding our live streaming business. In Q1, live streaming revenue returned to a positive growth trajectory, increasing 14.4% year-on-year to RMB 9.8 billion, propelled by a firm focus on diverse top-tier content. We made consistent efforts to build a healthy, stable live streaming ecosystem to amplify the value of live streaming content consumption. We further strengthened our operation in core categories, including multi-host and group live streaming. By the end of Q1, the number of our partner talent agencies have grown by over 24% year-on-year and talent agency management streamers increased by over 40% year-on-year.

We also doubled down on developing premium grand stage content to help streamers and KOLs efficiently retain followers and unlock more monetization potential. At the same time, we've introduced targeted support policies and optimize the traffic mechanisms, bringing offline entertainment and culture consumption formats online and fosters organic offline online interactions, enhances users' interest and engagement in high-quality live streaming content. We continue to strengthen our gaming content ecosystem by deeply integrating short video live streaming and community operations with help game developers break through traditional promotion batteries.

We also collaborated with major eSports events on live streaming copyrights and cooperated IP-based events while operating our own eSports team, KFG. These endeavors drove more exploration and innovation aimed at combining gaming and entertaining live streaming content. Beyond content, our live streaming strategy continued to empower traditional industries. In Q1, our daily number of users submitting resumes on quite higher, increased by over 110%. The number of matches grew by over 300% year-on-year. In ID housing the daily lead generation surged by 150%.

Finally, in terms of our overseas business and local services progress. In Q1, our overseas business continued to make steady progress with revenue rising by 32.7% to RMB 1.33 billion. Online marketing services maintained strong year-on-year momentum with effective cost and expense control. Our overseas business achieved quarterly operational profitability for the first time. We further improved overseas customer acquisition efficiency by focusing on targeted promotion on high-value demographics.

This contributed to steady DAU growth in Brazil, one of our core international markets. Following the tremendous success of sponsoring the Brazil real of BBB last year, we doubled down our strategic partnership to become this year's exclusive official review partner of BBB 2025. This boosted Kuai's brand visibility in Brazil and delivered a richer pan- entertainment content and interactive experience to local users supported by our sustained algorithm and traffic optimization, the average daily time spent per DAU in Brazil continued to grow steadily, both year-on-year and quarter-over-quarter.

On the monetization front, we leveraged our strong base of extensive local content to help advertisers in building a new content-driven marketing approach that uses multiple produced product formats to reach their target user groups. At the same time, our e-commerce business in Brazil saw a healthy growth in order volume supported by disciplined ROI management. In Q1, our local services business deepened its presence in lower-tier cities. We refined our operations around city clusters, leveraging our user base to offer high value for money local products and services.

Through dedicated small city projects, we further expanded our presence in these markets and driving local service GMV to sustain rapid year-on-year growth in Q1. Over 65% of its growth came from those tier cities. Category-wise, in-store dining services remain the backbone of our local service business with steady growth. The general store business has seen balanced development across the on-site retail, leisure, entertainment and other categories. Our supply side number of active merchants and available merchandise grew by 81% and 71.3% year-on-year, respectively, in Q1. We also encourage merchants to adopt self-operated live streaming, which together with the employees' promotions and KOL distribution.

With the support from AIGC-driven content creation tools, this allowed us to scale both the quality and the volume of content more efficiently, helping merchants gain high-quality raffic exposure. greater product and content supply drove user transaction conversion with the number of average monthly paying users increasing by 73.1% Y-o-Y in Q1. Regarding monetization, we further optimized our local advertising products, improving the native operation of leads and traffic allocation strategy, which reinforced the effectiveness of merchants' marketing placements.

As a result, local service revenue rose twofold year-on-year. In addition, our dual engine promotion strategy, combining large-scale campaigns with targeted small-scale promotions improved both merchant marketing efficiency and effectiveness of their subsidies, leading to continued loss narrowing for our local service business. To conclude, facing a complex and evolving marketing environment, we remain committed to our founding mission and user-centric approach. Through AI technology, we're fortifying Kuaishou's content and business ecosystem while pushing the boundaries of monetization.

We're confident that by staying focused on the long-term technology investment and delivering real user value, we will be able to rise above short-term cycles while improving user experience, empowering industries and giving merchants and marketing clients more tools to drive quality and efficiency, we will create more value for our shareholders. This concludes my remarks and now the financial part.

[Bing Jin, executive]

Thank you, Yixiao. Hello, everyone. During the first quarter, we advanced our iterative upgrade of our -- can AI large model to further strengthen our core competitiveness Meanwhile, we enhance the user experience and help online marketing clients and merchants improve operational efficiency and expand their business with rich content and continuously optimize the traffic coordination mechanism.

These efforts result in healthy and steady growth in both our operating metrics and financial performance, laying a solid foundation to support our full year goal. In Q1, our total revenue increased by 10.9% year-on-year to RMB 32.6 billion and adjusted net profit reached RMB 4.6 billion, representing an adjusted net margin of 14%. In particular, our overseas business delivered its first ever quarter of operating profit in Q1. Now let's take a closer look at our Q1 financial performance. Our total revenue grew 10.9% year-on-year to RMB 32.6 billion in Q1. The increase was driven by growth across each of our core business, including online marketing services, e-commerce and live streaming. Online marketing services revenue increased by 8% to RMB 18 billion in Q1 from RMB 16.7 billion in Q1 last year.

This increase was driven by the full process application of AI technology in our online marketing solutions, which significantly enhanced our marketing materials conversion efficiency and led to increased consumption from marketing clients. Revenue from other services, including e-commerce reached RMB 4.8 billion in Q1, up 15.2% from RMB 4.2 billion in the same period last year. This increase was mainly attributable to the growth in e-commerce GMV, which boosted e-commerce commission income. Leveraging our refined omni-domain operations and AI empowerment across various scenarios, we further elevated the number of e-commerce monthly active paying users and monthly active merchants in Q1.

We also provided merchants and KOLs with richer marketing tools and more diverse traffic incentives, helping them grow rapidly and expand their businesses. In Q1, our live streaming revenue was RMB 9.8 billion, an increase of 14.4% from RMB 8.6 billion in Q1 last year, resuming positive year-over-year growth. We're committed to building a long-term and sustainable live streaming ecosystem. By refining our operations and consistently developing diverse content categories, we further increased user engagement with high-quality live streaming content. Cost of revenue increased by 11.5% year-on-year in Q1 to RMB 14.8 billion, accounted for 45.4% of total revenue.

The increase was mainly due to increase of revenue sharing costs and related taxes in line with our revenue growth, partially offset by decreases in depreciation of property and equipment and the right-of-use assets and amortization of intangible assets. In Q1, gross profit grew by 10.4% year-on-year to CNY 17.8 billion. GP margin was 54.6%, an increase of 0.6 percentage points sequentially. Moving to expenses. Selling and marketing expenses increased by 5.5% year-on-year to RMB 9.9 billion, accounting for 30.4% of total revenue, dropping from 31.9% in Q1 last year.

The increase in selling and marketing expenses was mainly due to increased spending on business promotions, including online marketing services and e-commerce businesses, while the decline as a percentage of total revenue was attributable to our improved operational efficiency. R&D expense was RMB 3.3 billion, rising by 16% year-on-year, accounting for 10.1% of total revenue. Administrative expenses increased by 79.2% year-on-year to RMB 828 million, accounting for 2.5% of total revenue. The increase in R&D and administrative expenses was mainly due to higher employee benefit expenses, including related share-based compensation expenses.

Group level net profit for Q1 was RMB 4 billion. Group level adjusted net profit rose 4.4% year-on-year to RMB 4.6 billion with an adjusted net margin of 14%. Our balance sheet remains robust with cash and cash equivalents, time deposits, restricted cash and wealth management products totaling 94 billion as of March 31, 2025. We generated positive operating net cash flow of RMB 3.3 billion in Q1. Additionally, we actively delivered on our commitment to shareholder returns. By the end of market close today, we repurchased an aggregate of approximately HKD 1.42 billion or 29.19 million shares, which accounted for about 0.68% of our total shares outstanding within the year 2025.

Looking ahead, we will remain focused on user needs, promoting healthy and prosperous development of our content and business ecosystem. Additionally, we will firmly execute our AI strategy and explore diverse growth avenues while fortifying our existing business, driving consistent business development and creating long-term value for users, partners and shareholders. This concludes our prepared remarks. Operator, please now open the call for questions.

[Operator]

[Operator Instructions] The first question comes from Felix Liu of UBS.

[Felix Liu, analyst]

Could management provide an update on Kling AI's commercialization? What are the main growth drivers? And what is the growth strategy for Kling AI going forward?

[Yixiao Cheng, executive]

Thank you for the question. But upon the leading continuously iterated technologies with advanced product abilities Kling AI's commercialization scale has accelerated since the beginning of this year. In Q1, revenue from Kling AI reached RMB 150 million. In terms of its revenue mix, paid consumer subscriptions currently account for almost 70% of Kling AI's revenue. Consumers such as professional independent video creators and advertising and marketing professionals combine the dissemination attributes of individual subscribers with the purchasing power of corporate clients.

The number of paid consumer subscribers and their ARPU are increasing rapidly, driving strong growth in consumer subscription revenue. At the same time, Kling AI provides API services to over 10,000 corporate clients across industries such as professional content creation platforms, advertising and marketing, film and animation, game production and smart devices, achieving an exceptionally high renewal rate. We believe Kling AI is set to become the new foundational infrastructure for video creation across even more industries going forward.

In April this year, we announced a major upgrade to Kling AI's video generation foundation model and launched Kling AI 2.0 master Edition for global users. Kling AI 2.0 significantly improves motion quality, semantic responsiveness and visual aesthetics, greatly expanding the upper limit of large video generation models creation capabilities and meeting the more complex needs of professional creators. We will launch more versions with cost-effective advantages in the near future, providing users a wider range of options to meet diverse video creation needs across various scenarios. Next, we plan to maintain a global leading position of Coin's foundational model by continuously iterating its technological capabilities and engineering innovation while enhancing user experience through ongoing product innovation.

Additionally, we will continue to carry out relevant operational activities, particularly in overseas regions to grow our user base. For example, our next-gen new image venture capital plan supports emerging AIGC creators with strong content and technical expertise by offering funding, global promotional resources, professional IP incubation systems and a stable computing power. The plan has already delivered breakthrough results with the global premiere of the trailer for the first AI short-play series, New World is Ling. The full short play will be released soon.

Meanwhile, we have also increased the speed ads and other forms of marketing placements, but these will be conducted on a limited scale based on strict ROI considerations. In summary, Kling AI success has reinforced our confidence in pursuing our focused strategy, including investments in organizational synergy, computing power, algorithm enhancements and data accumulation to maintain Kling AI's industry advantages and drive rapid...

[Operator]

The next question comes from Lincoln Kong of Goldman Sachs.

[Lincoln Kong, analyst]

My question is about how AI is empowering company's existing business. So that includes online marketing service and e-commerce business. And there are any quantitative metrics in this regard that you can share with us?

[Yixiao Cheng, executive]

Thank you for your question. We have always been committed to integrating AI through our businesses. In Q1, we stepped up the adoption of AI technology in multiple business scenarios. On top of leveraging large models for content understanding and recommendation accuracy, which increased user time stamps and engagement. As we mentioned before, we have also applied large model technology to various assets of our middle and back offices, including code writing and content review. Next, I'd like to elaborate on how AI is empowering Kuaishou's online marketing and e-commerce business scenarios.

In online marketing scenarios, AI has significantly empowered various aspects, including marketing material production, placement agents and recommendations. In terms of material production, our one-stop video creative production platform, magnetic Creator, utilizes multimodule large models to learn and understand from vast amounts of content. By employing Chain thought technology, it generates higher quality marketing materials, leading to a notable increase in conversion rates of marketing placements.

Additionally, our digital human live streaming room, NuVa has greatly improved the client conversion rates after integrating AI interaction capabilities. Our intelligent customer service system, PI is converting more leads by founding more natural and human. In Q1, during the traditional slow season for online marketing services, average daily spending on AIGC marketing materials reached approximately RMB 30 million. For external marketing services, our smart placement product, UAX, predicts potential audiences for advertisements using large model inference, evaluates the advertising performance of each material and automatically adjust the placement strategies based on bidding feedback.

For closed-loop marketing services, the omni-platform marketing agent 4.0's advanced bidding and price adjustment capabilities help merchants capture more organic traffic by integrating online marketing traffic with e-commerce traffic. Regarding marketing recommendations, by deeply integrating global knowledge with advertising expertise, large models can infer the relationships between users' natural behaviors and advertising actions, enabling end-to-end ad production that enhances the accuracy and conversion efficiency of marketing recommendations.

In e-commerce scenarios, we leverage large AI models to enhance merchants' operating efficiencies through content production, precise matching and intelligent customer service. In terms of content production, leveraging large model video recognition and deep semantic text capabilities, -- we automatically generate short video materials from live streaming highlights, showcasing product selling points and helping merchants capture long-tail traffic. In Q1, the average daily GMV of AI-generated live streaming highlights increased by more than 300% year-over-year.

For precise matching, our cross-scenario demand predictions utilize large models chain fat to automatically identify strongly correlated categories and interest tax, allowing algorithms to better understand users' potential needs and improve user product matching efficiency. For intelligent customer service, we integrate merchant characteristics, user behaviors, historical conversations, product and order details, e-commerce rules and other information into large models forming an intelligent workflow that swiftly responds to and efficiently resolve user inquiries, achieving an intelligent customer service resolution rate of up to 80%.

Going forward, we're confident that by continuing unlocking AI's potential, we will further improve quality and efficiency, particularly driving incremental growth in our online marketing and e-commerce businesses. I look forward to sharing more updates on our progress with you.

[Operator]

The next question comes from Brian Gong from Citi.

[Brian Gong, analyst]

Could management please share the recent trends in online marketing service and which sectors performed better? And also, what could be the key growth strategy for this segment this year?

[Yixiao Cheng, executive]

Thank you for your question. In April, we saw a steady pickup in client placements, and we're confident that year-over-year growth rate for online marketing services will return to double digits in the second quarter. For our closed-loop marketing services, the number of merchants accelerated year-over-year recently, thanks to improvements in our pen-self-based e-commerce sales funnels and upgrades to our omniplatform marketing agent 4.0. In external marketing services, spending in the content consumption sector continued to grow in the high double digits year-over-year. And in the local services spending, the year-over-year growth rate also increased significantly. We're confident that we can maintain revenue growth this year, mainly by helping more clients in content consumption, e-commerce and local services operate their businesses more efficiently and sustainably on our platform.

In the content consumption industry, ad materials in the form of short plays, novels and mini games not only drive monetization, they also align closely with users. This helps both our platform and clients better understand users and achieving the vision of advertising as a form of content and creation as part of operations. In year 2024, marketing spend in short-play industry grew over 300% year-on-year, and we expect that it can continue to grow rapidly this year. Mini Games and mobs are also seeing exciting growth. Q1 marketing spending for mini games rose by more than 30% year-over-year. Beyond smart placement with UAS, this year, we will also use large model technology to dynamically address the user payment nodes, which can help expand users and clients' overall revenue in the content consumption industry.

In the e-commerce industry, our abundant traffic and high penetration in lower-tier cities are very appealing to brand merchants. While there is still plenty of room to improve how we help merchants build content e-commerce operations and lower their operating costs. Meanwhile, pan shelf-based e-commerce GMV has grown rapidly in the past year, but marketing spend was held back by weaker data infrastructure and sales funnel constraints. We expect to see an acceleration in marketing spend in pan shelf-based e-commerce starting in Q2. As for the local services industry amid the consumption mix transformation, we're seeing rising demand among Kuaishou's over 700 million users. This is opening up new growth opportunities for merchants in this industry.

We support 2 types of local services merchants on our platform. Traditional ones focused on increasing GMV like restaurant group buying and those focused on lead generation and customer conversion like in the legal and home renovation service industries. We're improving our native private messaging capabilities on our platform this year. By using AIGC tools such as magnetic creator, digital human live streaming and intelligent customer service, we will assist merchants in lowering their operation costs and scaling up their marketing impact. In summary, we will continue to focus on industry-specific refined operations, intelligent marketing product iterations and algorithm optimizations to improve clients' marketing conversion.

[Operator]

The next question comes from Daniel Chen from JPMorgan.

[Qi Chen, analyst]

So my question is related to e-commerce. So this year's 618 shopping festival has already begun. Could you share the main strategy for this year? And also what's the highlight compared to previous years. Also, please share the development strategy for the shopping mall feature in the next stage.

[Yixiao Cheng, executive]

Thank you for the question. Amid ongoing challenges in consumer demand, we have introduced more strategic initiatives for this year's 618 shopping festival to help merchants and KOLs fully harness the new opportunities in omni-domain operations. During the 618 shopping festival, we will provide CNY 100 billion in traffic resources and CNY 2 billion in subsidies and launch innovative strategies across 3 dimensions: users, products and merchants and KOLs.

First, on the user front, we're combining presale promotions with the reservations for live streaming to lock in early demand through follows and flash sales. During the official promotion period, we will step up efforts to activate and reengage users through marketing tools such as large subsidies and free order promotions to boost conversion and purchasing power. This will allow us to gain new users in the public domain and deepen engagement in the private domain.

Second, on the product side, we're tailoring strategies for 4 key product types: new launches, promotion blockbusters, high-interest promotion products and everyday best sellers. For example, blockbuster items with strong price appeal will get support from platform subsidies, special promotions like the blockbuster initiative and KOL matchmaking to help sell-through. Finally, for merchants and KOLs, we have developed targeted tiered support plans based on KOLs scale and potential, top-tier, mid-level and emerging talent.

We have also expanded the product variety and improved pricing to stay competitive. On the traffic side, we have launched programs such as streamer competitions, challenges and hourly subsidy to help large-scale and high potential streamers break out. And by combining short videos with live streaming and adding shopping links to popular live streaming sessions for blockbusters, we will further stimulate omnidomain transaction opportunities across the platform.

Our shopping mall has become an important growth driver of Kuaishou's e-commerce business. To build on this, we will launch tailored operational strategies for different types of merchants. For merchants with limited operational resources or who have been newly on board, we will provide diverse marketing hosting services such as AI-powered material optimization, free traffic support for products, marketing activity registration and blockbuster production mechanisms. For example, since the product visuals and descriptions directly impact the click-through and conversion rates, our AI helps merchants improve material quality such as titles, images and videos, ensuring the efficiency of information distribution for shelf-based shopping scenarios.

For more experienced or operationally resourced merchants on Kuaishou, we will provide exclusive traffic channels, marketing tax and extra exposure in the shopping mall through official marketing channels such as big brand, big subsidy and special sale. One major initiative this year is our Superlinks, which create links to goods, stack additional subsidies and accumulate user assets through the platform. As a result, conversion rates for Superlinks products are nearly 5x higher than regular ones.

In conclusion, Kuaishou e-commerce will continue to leverage its omnidomain operational advantages, reach category-specific product supply, meet users' diversified consumption needs across different scenarios and fully utilize AI capabilities to empower merchants in their end-to-end operations. We aim to reduce merchants' operating costs through features such as AIGC content production, accurate placement and intelligent customer service. We are very confident that we can have more merchants achieve explosive growth through our major promotions, improving their business scale and operational quality.

[Operator]

The next question comes from Xueqing Zhang from CICC.

[Xueqing Zhang, analyst]

Could management share more about the investment plan on AI this year and its impact on the full year profitability.

[Yixiao Cheng, executive]

Thank you for your question. Regarding our investments in AI, let me start with Kling AI, as just mentioned by Yo. Kling AI achieved a better-than-expected revenue scale in Q1. Since Kling AI 2.0 launched in April, it received a widespread acclaim from creators, both domestically and internationally, especially for its ability to address the more complex creative needs of professional creators. Meanwhile, we have multiple Kling AI versions for creators to address their different creative needs and video production scenarios.

Kling AI's world-leading technology and product capabilities ensure we can continuously accelerate our commercialization, and we're confident that we can maintain this industry-leading revenue growth rate. Regarding AI impact on our profitability, we anticipate expenditure in AI-related areas will increase, particularly in R&D and personnel costs. We expect a year-over-year rise in these expenses, primarily allocated to attracting and retaining top AI talent as well as team capacity building. Kling AI has already generated a positive marginal profit at the inference level. Even if we scale up and invest more in inference computing power, the impact on our bottom line will be relatively small.

We're also very confident that through technological iteration, we can bring inference costs down even further. As our revenue grows and the fixed costs like training and labor are spread out more, CleanAI's overall losses and loss margin will continue to narrow. For the full year of 2025, our AI investment, including Kling AI, the impact on the group's overall profit margin will be among 1% to 2%. In the medium to long term, we believe AI can become one of the second growth curves of the company, contributing to both our top line and bottom line, creating more value for shareholders.

[Huaxia Zhao, executive]

Thank you. That's the end of the Q&A session. Back to you, operator.

[Operator]

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

[Yixiao Cheng, executive]

Thank you. Bye-bye.