Kuaishou Technology

HKEX:1024

Earnings Call Analysis

Kuaishou Q3 2023 Earnings: Robust Growth

In Q3 2023, Kuaishou achieved robust user and revenue growth, with significant advancements in its operations. Net profit hit RMB 2.18 billion, and adjusted net profit reached RMB 3.17 billion. Online marketing revenues soared by 26.8% year-over-year, comprising 52.6% of the total revenue, while the number of active marketing customers surged by more than 140% compared to the same period last year. The average daily users (DAUs) and monthly active users (MAUs) grew to 387 million and 685 million, up 6.4% and 9.4%, respectively. Users are highly engaged, with average daily time spent per DAU at 129.9 minutes, increasing by 6.9% year-over-year. Content consumption is high with nearly 100 billion daily video views, while interactions exceeded 9 billion daily in Q3. Additionally, the in-house Kuaishou Smart Cloud data center has been launched to support growth and improve efficiency. Notable events like the Asian Games further boosted engagement, with content related to the event garnering 53.1 billion views.

Robust Financial Health and User Growth

The third quarter of 2023 showcased a company on a healthy growth trajectory, achieving a net profit of RMB 2.18 billion and an adjusted net profit of RMB 3.17 billion. This financial performance is testament to the successful expansion of user base, content creators, and marketing customers which is central to the company's strategy.

Cost Efficiency via Technological Enhancements

The business has shown improved cost efficiency, particularly by reducing server and bandwidth costs as a percentage of revenue. A significant milestone was the launch of Kuaishou Smart Cloud data center, designed for high-performance computing and capable of housing 300,000 servers, underscoring the company's commitment to support its rapid growth sustainably.

Leadership Restructuring and High Double-Digit Revenue Growth

A strategic change in leadership has taken place with a new Head of E-commerce Business, leading to a seamless synergy between different business divisions and high double-digit growth in the company's online marketing revenue.

Record-Breaking App Usage Statistics

Continued record growth in both daily active users (DAUs) and monthly active users (MAUs), with a 6.4% and 9.4% year-over-year increase respectively, was reported. The app's daily usage per DAU rose to 129.9 minutes, marking a 6.9% year-over-year growth.

Acquisition and Engagement Success

The company reported nearly 100 billion average daily video views and a decrease in user acquisition costs due to enhanced efficiency. The growth of daily interactions, like comments and reposts, exceeded 9 billion, highlighting a successful user engagement strategy.

Significant Strides in Content Monetization

Through high-profile events like the 19th Asian Games and 'Project Astral', the company significantly boosted its content viewership and monetization capabilities, leading to a surge in marketing sponsorship revenue by more than 10 times compared with the previous quarter.

Spectacular Growth in Search Marketing Revenue

Search marketing revenue showcased a stunning increase, growing by over 120% year-over-year, while the number of average daily researches on the platform exceeded 600 million.

Sizable Increase in Online Marketing Customer Base

The number of active marketing customers saw a massive surge, growing by more than 140% year-over-year, demonstrating the company's robust growth in its online marketing services sector.

Aggressive Advances in Marketing Efficiency

The company saw an over 30% quarter-over-quarter increase in the consumption of external native marketing materials and introduced an AIGC tool to boost production efficiency, slashing production costs significantly.

Strategic Brand Marketing Campaigns

The invention of an Asian Games themed marketing campaign for China Mobile led to massive exposure, with showcases in 6 cities achieving more than 960 million exposures, leveraging unique marketing strategies for brand differentiation.

E-commerce Synergy and Robust Merchant Growth

The e-commerce segment has shown resilience with strong performance in the native e-commerce merchant sector and significant increases in both GMV and the number of monthly active merchants. This growth is underpinned by an emphasis on nurturing small- and medium-sized merchants and optimizing marketing solutions to amplify these merchants' long-term investment value.

Brand Merchants Witnessing Exceptional GMV Growth

Brand merchant tailored strategies have resulted in compelling GMV growth, registering a 100% year-over-year increase. This is indicative of a growing reliance on the platform for diverse branding opportunities.

Live Streaming Segment: Substantial Revenue and Engagement Uplift

Live streaming revenues expanded by 8.6% year-over-year, totaling RMB 9.7 billion. Factors contributing to this growth include heightened streamer engagement, where the average daily streaming time by streamers managed by talent agencies jumped by 30%.

Earnings Call Transcript 2023-Q3

[Operator]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Kuaishou Technology Third Quarter 2023 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided for management's prepared remarks, this English line will be in listen-only mode. I will 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 our third quarter 2023 financial results conference call. Joining us today are Mr. Cheng Yixiao, Co-Founder, Executive Director and CEO, as well as 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 recorded by law.

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 reconciliation of IFRS to non-IFRS financial results, please refer to our results announcement for the 3 and 9 months ended September 30, 2023, issued earlier today.

So for today's call, management will use Chinese as the main language and third-party interpreter will provide simultaneous English interpretation in the prepared remarks session and consecutive interpreting 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.

I will now hand the call over to Yixiao.

[Yixiao Cheng, executive]

Hello, everyone, and welcome to Kuaishou Third Quarter 2023 Earnings Call. In the third quarter of 2023, we continue to foster the growth of our healthy and sustainable operations, expanding our base of the users, content creators, and marketing customers and merchants. We continued our growth momentum with the steady revenue increases across our various business lines.

Accordingly, we achieved a group-level net profit of RMB 2.18 billion and adjusted net profit of RMB 3.17 billion. Our profitability was bolstered by our robust revenue growth across each of our core online marketing, e-commerce, live streaming business segments as well as our ongoing optimization efforts that improved our operating efficiency.

For example, we consistently increased our server and bandwidth utilization efficiency by leveraging advanced technologies. Our server and bandwidth cost as a percentage of revenue has consistently decreased over the last few quarters. To further optimize our cost efficiency, our own in-house data center, the Kuaishou Smart Cloud data center in Ulanqab, Inner Mongolia, was officially launched in July 2023.

It's now one of the largest data centers in China, serving high-performance computing power for big data and AI technology advancements. Our proprietary hyperscale data center is designed to house 300,000 servers, making it well equipped to support the rapid growth of our business as well as our ongoing development goals.

Before I go into talk about our third quarter business developments, I'd like to update you on a recent senior level appointment. As you may have noticed last week, I've stepped down as the Head of E-commerce Business. Thomas Jianwei is now leading both the E-commerce business and the Commercialization business reporting directly to me. Having leaded the E-commerce business for over a year, I gained valuable insights into the synergies between our traffic and commercial ecosystem.

Together with the team, we've built a robust foundation for e-commerce, sustainable long-term growth. I believe Thomas' appointment will help maximize the synergies between the upstream and downstream business.

My role will now pivot to focus wholly on the CEO position. Here, I will concentrate on Kuaishou's overarching long-term goals, including corporate strategy, organizational development and exploring new industrial opportunities.

I will also focus on optimizing the synergy between the traffic ecosystem and the monetization system from a holistic perspective. During the past year that Thomas oversaw the Commercialization business. He demonstrated exceptional insight into the dynamics of products, our content ecosystem, traffic operations and monetization. Under his leadership, the company's online marketing revenue has grown rapidly in high double digits.

Looking ahead, we expect Thomas' dual role to strengthen cooperation and synergy between the 2 business units, fortifying the organization and improving monetization efficiency, thereby contributing to the long-term prosperity of Kuaishou's commercialization ecosystem. Next, I'll discuss our key business developments in Q3.

First, user growth and ecosystem construction. In Q3, we maintained high-quality growth across both our user base and traffic, owing to our efficient user strategy, extensive high-quality content offerings and continuous algorithm optimization. Average DAUs and MAUs on the Kuaishou app continued their record-breaking growth momentum during the third quarter reaching 387 million and 685 million, respectively, representing year-over-year increases of 6.4% and 9.4%, respectively.

Average daily time spent per DAU on the Kuaishou app was 129.9 minutes in Q3. And our total user time spent grew 6.9% year-over-year. Moreover, the average daily total video views of our short videos and live streaming content reached nearly 100 billion. We have prioritized the efficiency and quality of our user growth, achieving consistent ROI improvement. This resulted in further decrease in our average user acquisition costs in Q3, both quarter-over-quarter and year-over-year. Specifically, we intensified our efforts to promote and distribute high-quality original content, including short plays, which led to robust user retention. Meanwhile, by offering high-quality vertical contents such as the Summer Star Wish Party, we acquired new users while also increasing the engagement of our existing users.

We're also actively exploring new innovative user acquisition channels. For instance, we extended our reach to younger demographic through live streaming courses provided by top universities to the public. We have been committed to fostering a differentiated social media platform that inspires users to develop social connections and relations. As of the end of the Q3, pairs by mutual followers on the Kuaishou app reached 32.2 billion, representing a year-over-year increase of around 40%. In addition, in Q3, average daily interactions, including likes, comments, reposts and et cetera, on the Kuaishou app exceeded 9 billion. We are dedicated to encouraging high-quality original content creation supporting the development of diverse content genres, promoting high-quality content featuring distinctive Kuaishou characteristics.

In sports content, as the official broadcaster and the short video sharing platform of the 19th Asian Games Hangzhou, Kuaishou provided users with a panoramic view of the game's rich content, innovative interactive experience with the cutting-edge live streaming technology.

During the Asian Games, daily views picked out at around 230 million with 53.1 billion video views of the Asian Games-related content. In terms of the short plays, we launched a total of 85, Project Astral, short plays during the summer vacation period. Of these, 21 short plays surpassed 100 million views, covering various genres including ancient style, urban, youth and family. While solidifying our ability to produce blockbuster short plays, we have steadily upgraded our monetization capabilities.

In Q3, marketing sponsorship revenue from Project Astral short plays surged by more than 10x compared with the previous quarter. In September, we launched a 2023 Back-to-School Season campaign in the pan-knowledge vertical, collaborating with 61 skilled professors and 149 renowned experts. We introduced high-quality educational resources to users through short videos, live streaming contributing to inclusive education.

With respect to our search business, we introduced the Kuaishou AI Dialogue function. This is the first intelligent Q&A product based on the large language model in the short video and live streaming industry. This innovation brings intelligent Q&A and text creation functions to users within search scenarios, improving users' intelligent search experience.

In Q3, searches average monthly users exceeded to 470 million. The number of average daily researches on our platform reached over 600 million. The number of daily search inquiries peaked at more than 700 million. We're also accelerating the commercialization of our search service. Search marketing revenue grew by over 120% year-over-year. Moving to our monetization progress. First, look at our online marketing services. In Q3, despite the ongoing challenges stemming from the macroeconomic conditions and the slow recovery of marketing customers confidence, we achieved exceptional online marketing revenue growth outperforming the industry. This was mainly driven by upgrades to our commercial products, technology development in our algorithms and deeper operation in various vertical industries.

Specifically in Q3, our revenue from online marketing services reached 14.7 billion, growing by 26.8% year-over-year and accounting for 52.6% of our total revenue. The number of active marketing customers in Q3 increased by more than 140% year-over-year. In Q3, our external marketing services continued to recover and the year-over-year growth rate accelerated compared with Q2.

Notably, we made a substantial progress in industries such as media information, education and training and health care. We've been focused on refining industry-specific operations. For example, in the education and training industry, we identified the needs of specific high-quality users on our platform, promoting marketing customers to allocate more budgets on our platform. By extending the scope of native marketing materials, we aim to enhance users content consumption experience and boost conversion rates for marketing customers.

In Q3, the consumption of external native marketing materials increased by more than 30% quarter-over-quarter. In addition, we introduced an AIGC tool to produce marketing material, boosting the efficiency of marketing customers' productivity, which has substantially reduced production costs. In terms of brand marketing, we leveraged our sponsorship of the Hangzhou Asian Games to explore customized brand marketing strategies that align with marketing customers individual needs.

To that end, we created a custom IPs tailored to diverse scenarios. We also utilized our advantages in traffic, content and our KOL ecosystem, creating additional marketing opportunities for marketing customers.

For instance, inspired by the concept of the Asian Games plus Technology, we invented a marketing campaign for China Mobile with the theme of National Champions' Dream, Asian Games' Mobile Journey. This campaign, which integrated online and off-line activities, which showcased in 6 cities achieving more than 960 million exposures.

Marketing services revenue from native e-commerce merchants maintained robust growth in Q3, benefiting from the increased the sale of our e-commerce business. Specifically, we focus on the customer composition, traffic alignment and efficiency improvement. In terms of the customer composition, we emphasized the growth of small- and medium-sized merchants within our ecosystem.

Our priority is to incrementally improve how we cultivate these merchant customers, build traction for their business and provide increased policy support for their traffic and operations.

Our omni business marketing -- platform marketing solution effectively enhanced the synergy between the marketing and e-commerce traffic, amplifying the long-term value of merchants' investment in omni domain traffic. In Q3, marketing customers are spending from omni platform marketing solution increased by nearly five-fold compared with the Q2.

In terms of the efficiency improvement, we increased the stability of ad placements for small- and medium-sized merchants with our upgraded smart hosting products. Live streaming hosting and merchandise hosting were particularly effective in amplifying merchants' ROI by increasing the opportunities for small and medium-sized business to make sizable revenue leaps on our platform.

This, in turn, has strengthening this business willingness to allocate funds to ad placements on Kuaishou. In Q3, our marketing customer spending through smart hosting increased by nearly nine-fold quarter-over-quarter. Second, our e-commerce business. Despite Q3 traditionally being the low season for e-commerce and our customer confidence are still in the process of recovery, we continue to demonstrate unique resilience advantage in our e-commerce business.

This was attributable to a short videos being a more efficient form of content delivery and also to our clear and distinctive e-commerce strategy, which centers on trust-based e-commerce relationships and enabling consumers to discover cost-effective goods through reliable streamers and content.

In Q3, we further enriched our merchandise and enhanced buyer conversion efficiency through our refined operations. As a result, our GMV growth has significantly outpaced the industry, increasing by around 30% year-over-year. In terms of supply, more merchants are seeking growth opportunities and embracing the benefits our traffic brings to increase their mass-market penetration given the current macroeconomic environment.

The number of newly onboarded merchants remain at a high level during the third quarter. Meanwhile, we optimized our tiered operations from merchants. We also enhanced the policy support to improve the live streaming penetration rate and the number of monthly active merchants on our platform increased by approximately 50% year-over-year.

Specifically, in Q3, we introduced targeted high-potential merchants in major industry zones in 14 cities, offering practical courses to help them rapidly increase their business scale. We also intensify our efforts to promote our case studies and enhance our influence in the industry as well. Additionally, we've implemented tiered and capitalized approach to operate and support new merchants.

Based on their content and merchandise capabilities, we provide a differentiated empowerment system, access to cold start resources as well as traffic support and this reduces the operational challenges for merchants. In Q3, the percentage of merchants with GMV leaping to all tiers ranging from 50,000 to over 2 million increased significantly quarter-over-quarter.

Regarding branded merchants, we are placing a greater focus on supply diversity and the brand merchants environment. We have enriched our brand offerings through various channels such as outlet stores and exclusive shops resulting in continuous and rapid growth in the number of new brands on our platform. We are consistently improving the merchant environment by providing full support to merchants throughout the process, including attracting brands, cold starts, self-operation as well as distribution.

We fully utilize the Stream Initiative and the brand traffic project to enhance the brand's traffic acquisition capabilities. Meanwhile, we are continuously improving our traffic-matching efficiency. By creating marketing IP, such as the brand flash sales, we further fortify our user mindset while improving conversion efficiency.

In the third quarter, GMV proportion from brand, including Kwai Brands, continued to increase year-over-year. Among these well-known brands self-operated live streaming achieved impressive results with the GMV growing by 100% year-over-year furthering their increased growth rate on a consecutive quarter basis. In terms of KOLs, we placed greater emphasis on the overall health of the ecosystem.

We expended short videos and shelf-based e-commerce realms, lowering the operational barriers for KOLs. We have consistently strengthened our distribution channels, improved merchandise selection efficiency, refined our operations for the growth and development paths of mid-tier and long-tail KOLs. The proportion of mid-tier and long-tail KOLs in the overall KOL-related GMV has gradually increased by over 20% at the beginning of 2021 to nearly 50% in Q3.

In terms of monetization, KOLs are showing higher acceptance of receiving commission from distribution. This is not only due to the unique community atmosphere at Kuaishou, but also in the increasing variety of distributable merchandise. The platform provides more precise matching services and the pairs of KOL-matching merchants on our platform continued to rise quarter-over-quarter.

Overall, merchants and KOLs are collaborating more effectively with the Stream Initiative, mutually benefiting coexisting, collectively building on the Kuaishou e-commerce system. The ecosystem's health also depends on the platform infrastructure development. In Q3, scoring system for merchandise, merchants experience, and KOL reputation played a crucial roles in differentiating quality merchants by helping them gain more traffic and reducing exposure for underperforming merchants.

We continuously optimized the scoring system by introducing more positive indicators to add value when users are making shopping decisions, reinforcing user trust and platform, enhancing conversion efficiency and promoting repeat purchases. With regard to algorithm optimization, we have adopted higher-model approach to improve the scale and efficiency of e-commerce traffic growth across the board.

At the same time, we'll continue to promote the content and services ranking mechanism by increasing the algorithm weight of both store and KOL scores. With respect to the expansion of the e-commerce service scenarios, we'll further strengthen our short video and the shelf-based realms.

Short videos have consistently proven effective in recommendations, cultivating fans, funneling traffic to live streaming as well as fostering real-time transactions. We are continually improving the quality of a short video e-commerce content and a conversion efficiency. By combining the highlights from live streaming and precise recommendations, short video GMV grew by more than two-fold year-over-year in Q3, making the fifth quarter of consecutive growth. Within shelf-based e-commerce, our search scale has continually expanded and the peak DAUs using Kuaishou search for e-commerce purposes increased by 25% quarter-over-quarter to over 100 million.

Meanwhile, we'll continue to optimize users' research experience and improve our capabilities to capitalize on user demands. In Q3, search GMV grew by nearly 70% year-over-year. In terms of the shopping mall, we increased traffic on playing users home page, and the shopping tab on the home page. We also improved the paying ratio and user experience by leveraging our differentiation strategies such as making merchandise information vivid and detailed.

This further enhanced the user retention and reduced product return and negative reviews. By deeply -- more deeply integrating the shopping mall with content and refining our inventory operations, we're able to take a deeper dive into the exploration and aggregation of paying users' demand, which enabled us to carry out more targeted measures to attract merchants.

We also continuously explored new marketing and operating scenarios to provide merchants with more predictable business opportunities. In Q3, shopping mall GMV continued to grow quarter-over-quarter and shelf-based e-commerce GMV accounted for nearly 20% of total GMV. The continuous prosperity of supply and ecosystem further drives the users' demands. In Q3, our average monthly paying users reached nearly 120 million, with both absolute number and penetration rate increasing from Q2's peak season. These increases benefited from our refinery subsidiary and inventory strategy and diverse activities on platform, including the deep penetration of the Money Saving Monthly Card, improving the conversion efficiency of paying users and repeat purchase intention. Leveraging to optimized efficiency of the smart subsidy, channel management, user empowerment projects, the quality of the users on our platform, especially the quality of new users improved significantly, and the frequency of monthly orders continue to grow steadily.

Third, regarding our live streaming business. In Q3 2023, our live streaming revenue grew by 8.6% year-over-year to RMB 9.7 billion. The increase was attributable to consistently improved high-quality live streaming offerings, better user consumption experience and continued optimization of the live streaming ecosystem. On the supply side, we established a regional talent agency operating platform to enhance talent agency's operating capabilities as well as drive new user acquisition for streamers and high-quality content supply for small- and medium-sized streamers.

In Q3, the number of streamers managed by talent agencies grew by over 40%, while streamers' average daily live streaming time increased by 30% year-over-year. Meanwhile, we continually expanding our diverse supply by developing innovative tools based on entertainment live streaming scenarios and attract high-quality developers through our live streaming open platform while lowering the entry barriers for streamers.

Across both internal and external industry ecosystem, we have successfully increased the supply of multi-host live streaming, bringing users to more high-quality content. We are firmly committed to building a long-term healthy and sustainable live streaming ecosystem while continuously advancing our popular content verticals and nurturing streamers. In September of 2023, we initiated the National Art Inheritance Program to create additional culture IP by providing substantial traffic support and professional training to streamers on our platform, who cover traditional Chinese opera, folk music and folk art.

Meanwhile, we continued to facilitate AIGC scenarios, including virtual human live streaming and empowered by underlying technological capabilities like real-time capturing, visual effects and et cetera. These capabilities boost the efficiency of our business innovation by reducing labor and time costs. Furthermore, as a benchmark case of our live streaming plus services empowering traditional industries, the average daily resume submissions during Q3 on Kwai Hire grew by over 200% year-over-year, driven by summer vacation and campus recruitment in autumn this year.

We also lowered the entry barrier for merchants leveraging AIGC and our smart customer service. Additionally, Ideal Housing covered more than 120 cities nationwide with cumulative gross transaction value surpassing RMB 14 billion in Q3.

Finally, in terms of our overseas business progress. In Q3, we continued to advance our strategy focused on key overseas market, DAUs and the user time spend in key overseas markets steadily increased year-over-year. We further diversified our content vertical offerings in the entertainment and sport industries providing traffic support to mid-tier creators. Simultaneously, we deepened our local operations, catering to local users' specific consumption needs. Building on this foundation, we intensified our monetization efforts, continued to improve operating efficiency, which significantly reduced our user growth costs year-over-year. In Q3, total revenue of our overseas business reached RMB 652 million, more than doubling year-over-year.

By continuously optimizing our operating efficiency, we achieved a 60.2% (sic) [ 62.4% ] year-over-year decrease in overall operating losses overseas in Q3, which also further narrowed quarter-over-quarter. On the online marketing services front, we focused on key industries, optimizing marketing efficiency to unlock the commercial potential of various users across different demographics.

In Q3, we increased the number of marketing customers of our overseas business by over 200% quarter-over-quarter, ensuring ongoing customer quality improvements, while expanding our customer base. In addition, we optimized our brand and marketing conversion to increase the advertising inventory.

In Brazil, for example, we have extended marketing resources to more well-known brands such as Amazon, McDonald's. In terms of live streaming services, we continued to promote local operations in overseas markets and focused on tapping into high-value paying users, leading to a continuous increase in paying users penetration rate for live streaming services in Q3.

This -- in conclusion, despite of facing numerous challenges in third quarter of 2023, we have made significant progress across our core business lines through deepened focus on refined operations. This concludes my prepared remarks. Thank you. Next, our CFO, Mr. Jing Bing will discuss the company's financial performance for Q3.

[Bing Jin, executive]

Thank you, Yixiao. Hello, everyone. In Q3 2023, we delivered a robust financial performance. Our group level net profit increased quarter-over-quarter, reaching RMB 2.18 billion, marking our second consecutive quarter of delivering an IFRS net profit since our IPO. This remarkable achievement can be attributed to our consistent growth across our core business, coupled with our persistent efforts in financial management and the refined operational efficiency.

This disciplined management of our costs and expenses continues to unlock operating leverage that enhances our sustainable profitability. At the same time, while fostering high-quality user growth. In Q3, our average DAUs and MAUs continued to climb, reaching historical highs. This underscores our ability to improve user retention through an array of high-quality content and algorithm optimization.

By combining effective traffic monetization strategies with improved user experience, we are recognizing the increasing value of our user ecosystem, moving towards an era of profitability. Now let's take a closer look at our financial performance for Q3 2023. In Q3, our group's revenue grew by 20.8% year-over-year to RMB 27.9 billion. The increase was driven by growth across each of our core business, including online marketing services, e-commerce and live streaming. Revenue from our online marketing services increased by 26.7% to RMB 14.7 billion for Q3 from RMB 11.6 billion for the same period of 2022.

This growth came from an increasing number of marketing customers, especially from our e-commerce merchants driven by the increased traffic on our platform and our diversified marketing product portfolio as well as our industry-specific and refined operations.

We continue to deepen our refined operations for vertical industries, focusing on marketing customers' needs and improving the content production efficiency. In terms of marketing services for native e-commerce merchants, we focused on nurturing the growth of small- and medium-sized merchants by improving effectiveness as introducing omni platform marketing solution and upgrading products of smart hosting services to reach more demands of them. Our other services revenue increased by 36.6% to RMB 3.5 billion for Q3 from RMB 2.6 billion in the same period of 2022, led by our growing e-commerce business and its increasing GMV.

During the quarter, e-commerce GMV grew by 30% year-over-year due to an increased number of active merchants and then active e-commerce paying users as well as our refined operation strategies. We maintain a high number of newly onboarded merchants. We also expanded the range of brands, improving the user shopping experience and further increase the conversion rates. Revenue from our live streaming business increased by 8.6% to RMB 9.7 billion for Q3 from RMB 8.9 billion in the same period of 2022. The increase was driven by our continuous efforts to enrich our content supply, enriching our users access to diverse live streaming content.

For Q3, our cost of revenues increased by 8.6% year-over-year to RMB 13.5 billion, representing 48.3% of our total revenues. This increase was mainly due to increased revenue-sharing costs and related to taxes, which is in line with our revenue growth as well as depreciation of property and equipment and right-of-use assets and amortization of intangible assets. This increase in cost of revenues was partially offset by a decrease in bandwidth expenses and server custody costs. Gross profit for Q3 grew by 35% year-over-year and 3.7% quarter-over-quarter to RMB 14.5 billion.

Gross profit margin reached at 51.7% in Q3 expanding by 5.4 and 1.5 percentage points year-over-year and quarter-over-quarter, respectively, benefiting from our topline strength and effective cost control measures. Moving to expenses, selling and marketing expenses for Q3 decreased by 2.1% year-over-year to RMB 8.9 billion, accounting for 32% of our total revenues, down from 39.5% in the same period of 2022, largely due to our more disciplined and efficient spending on user acquisition and retention.

Research and development expenses were RMB 3 billion for Q3, decreasing by 16% year-over-year, accounting for 10% of total revenues in the quarter, dropping from 15.3% in the same period of 2022.

The decline in R&D expenses was mainly the result of decreased employee benefit expenses, including related share-based compensation expenses. Administrative expenses decreased by 15.3% year-over-year to RMB 945 million for Q3 accounting for 3.2% of total revenues down from 4.6% in the same period of 2022, primarily due to decrease in employee benefit expenses, including related share-based compensation expenses. Group-level net profit for Q3 rose to RMB 2.2 billion compared to a net profit of RMB 1.5 billion in Q2 and a net loss of RMB 2.7 billion in Q3 2022.

Group-level adjusted net profit rose to RMB 3.2 billion compared with adjusted net profit of RMB 2.7 billion in Q2 and adjusted net loss of RMB 672 million in Q3 2022 demonstrating our substantially improved profitability. We maintained a strong balance sheet with cash and cash equivalents, time deposits, restricted cash and a wealthy management product of RMB 55.4 billion as of September 30, 2023. Owning to our enhanced monetization capabilities and working capital management efficiency, we generated a positive operating net cash flow of RMB 7.7 billion for Q3 2023.

As we look ahead, our primary focus remains anchored in the development of our content and ecosystem with an emphasis on user growth strategies. We'll continue to strengthen our business capabilities through the system of e-commerce and marketing services creating a powerful flywheel effect that propels our growth forward. Leveraging the foundation of our enriched content supply and community vitality, we aim to foster deeper connections with our users, making our experience even more engaging. We believe that by staying true to our core strategies, which enhance and deepen our positive competitive moat, we can seize the growth opportunity and sustained rapid growth. That concludes my prepared remarks. Now we are open for questions.

[Operator]

[Operator Instructions] The first question comes from the line of Thomas Chong from Jefferies.

[Thomas Chong, analyst]

[Foreign Language] Thank you management for taking my questions and congratulations on a strong set of results. We have seen very good results for Double 11. Can management comment about the overall performance for the events progress for shopping mall and the sustainability and driver for our e-commerce GMV to continue to outpace industry growth.

[Unknown Executive]

[Interpreted] Thank you for your question. Looking at this year's Double 11 sales promotion, the overall performance beat our expectations, and we are very pleased with the results, considering the current market and consumer environment. This year, we upgraded our product capabilities, simplified merchant registration process and provided official merchandise selection services through a more complete traffic mechanism for our blockbuster merchandise and data-driven operational tools. We have successfully built a productization bridge between merchants and our platform.

Additionally, with a variety of traffic plans and smart subsidy strategies, we helped merchants incubate blockbuster merchandise and operate big promotions, fostering a scale-up in GMV. Furthermore, our net operation and capabilities are continuously improving. We had a larger presale scale with a broader range of participating merchants and more comprehensive categories and SKUs this year. By locking in users to manage events, our presale GMV increased by 84% year-over-year.

We also launched a big brand, big subsidy section in shopping mall capitalizing on users shopping mentality for getting the most value for money through the operations of benchmark blockbuster merchandise. In terms of shopping mall, we opened homepage traffic access during Double 11 and capped in reaching the product offering, strengthening merchandise infrastructure and creating a unique marketing scenarios.

During the promotion, the shopping malls GMV grew at a rapid speed accounting for around 10% of the events total GMV. Moving forward in the shopping mall as a complement to our content e-commerce, we are primarily targeted users with shopping mentality to strengthen repeat purchases and meet users' certainty shopping demand further increasing purchasing frequency.

On the supply side, we'll continue to enhance the integration of content and shelf-based realm utilizing Kuaishou's content advantages and differentiation to strengthen content of merchandise cards. We will also continuously enrich marketing scenarios to strengthen user mentality. Regarding the high growth rate, sustainability and the driving force of Kuaishou's e-commerce business, let me share some of my personal thoughts on the underlying logic. First, the Chinese e-commerce market hasn't reached a 0 some stage yet. And its market size will continue to rise.

Kuaishou plays an important role in raising the ceiling, primarily thanks to our differentiated user attributes that are more mass market-oriented and go deeper into lower-tier markets. Although the mass market demographic has relatively limited channels for accessing information, the pursuit of quality lifestyle and affordable quality goods is always there. These demographics also have higher consumer loyalty, which aligns well with the Kuaishou's trust-based e-commerce and community atmosphere. We hope that with the help of Kuaishou, the needs the mass market demographic can be continuously created and satisfied.

Secondly, there is still significant room for growth on the supply side. Many brands and industries and merchants have mature online operational capabilities and are willing to invest the resources but their development on Kuaishou is still in the early stage. As our platform grows become more reasonable and clear in the infrastructure in the business environment for merchants continue to improve, their willingness to work deeply with Kuaishou is increasing. For example, for our consumer electronics and home appliances category, the number of merchants increased by over 80% year-over-year in the third quarter, driving its GMV improvement higher than the platform.

In the future, whether it's our top categories like apparel, consumer electronics and home appliances or outdoor and groceries with strong growth momentum, as user demand has become more diverse and refined, our supply side will continue to innovate. We are confident that we can become 1 of the online growth channels for merchants. Additionally, we see room for continuous growth across different realms, the synergy of content e-commerce integrated with content consumption scenarios, enhance our insights into user preferences and needs. It has also further facilitated more accurate matching of products to users, thereby improving conversion efficiency.

Moreover, the planned expansion and development of the shelf-based e-commerce are expected to boost to repeat purchases. With the drivers of the Kuaishou e-commerce growth, we are confident in continuously increasing user purchase frequency and convert more users to paying users. At our current stage, there remains substantial potential for enhancing our high double-digit penetration rate of NPU. Meanwhile in reach to brands and categories will further propel average order price growth.

[Operator]

The next question comes from the line of Lincoln Kong from Goldman Sachs.

[Lincoln Kong, analyst]

[Foreign Language] Congrats on the strong set of results. In the press release, company mentioned the third quarter, the external enterprising revenue growth on a year-on-year basis accelerated from the second quarter. So could management elaborate what are the industry that performed well and what are the industry that having some pressure? So looking forward, what will be the growth strategy for external enterprising business?

[Unknown Executive]

[Interpreted] In the third quarter of 2023, we deepened and refined our operations. We made solid progress in many industries especially in media information, education and training as well as health care. Specifically in the media information industry, paid short play saw the highest growth with ad placements and spending on Kuaishou increasing month over month in this year.

In the third quarter of 2023, the ad expenditure of paid short plays grew by over 300% year-over-year and nearly 50% quarter-over-quarter. This is attributable to our continuous optimization of the mini programs and payment channels for paid short plays as well as the rapid increase in the supply of paid short plays under our support policies.

In the education and training industry, growth mainly come from adult education. We executed targeted operations among several key marketing customers, capitalizing on Kuaishou's demographic strengths particularly in educational offerings for middle-aged and elderly populations. This strategic approach results in augmented budget placement from these marketing customers.

With respect to the gaming industry, the marketing expenditure from mini program games increased by nearly 40% year-over-year in the third quarter. This was mainly due to our traffic funnel optimization, which improves the end-to-end conversion for mini program games as well as our enhanced incentives and support policies for ad agents.

The e-commerce platform and transportation industry saw a year-over-year decline in marketing placements due to budget cuts across all media outlets from some of the key customers. However, entering the fourth quarter with the Double 11 sales promotion, the daily average ad expenditure for external marketing services by the e-commerce platform increased by over 30% quarter-over-quarter so far. So the transportation industry, despite budget contraction in certain platform type clients, there was a marked increase in marketing by automobile manufacturers. This shift significantly enhanced both the overall businesses' health and the client portfolio.

As we look towards future strategies for enhancing our external marketing services, it's necessary to implement industry-specific and refined operations. For sectors with substantial online presence, our focus is on refining conversion efficiency through advanced data infrastructure, algorithmic improvements and product enhancements. In industries with a moderate online presence, our strategy focuses on creating native marketing content, fostering a cohesive synergy between commercial traffic and organic traffic and improving the ROI for our marketing customers through support policies.

For sectors with less online presence, our approach involves industrialized operations, tapping into user demand that aligned with Kuaishou's attributes and effectively promoting customers' budget placement. Additionally, we'll leverage AI technology to not only reduce the cost associated with creating marketing materials, but also to improve post-click converting rates thereby driving growth of our external marketing services.

[Operator]

The next question comes from the line of Lei Zhang from Bank of America.

[Lei Zhang, analyst]

[Foreign Language] Congrats on the strong profit build. My question is mainly regarding your new initiative. Can you give us more color on the new business including local services and Kwai Hire business.

[Unknown Executive]

[Interpreted] After a year of exploration and operation, we have developed a clear strategy approach and goals for our local services business. And we have made good progress in Q3, average daily GMVs of local services increased by approximately five-fold compared to Q1. We continue to stimulate user exploration of dining and entertainment through content recommendations, offering users the best band for their buck and reliable platform services. Leveraging our diverse user base, we support various merchants in achieving rapid growth on our platform.

Specifically, our local services supply ecosystem thrived in Q3 with the number of active merchants maintaining quarter-over-quarter growth of over 150%. We strategically expanded our focus to 16 key cities, including newly opened cities like Shenyang in which we not only have the user advantages, but also have reach outed to and engage with many merchants who are eager to expand and grow, successfully creating phenomenal blockbuster travel cases across the entire platform. In terms of the categories, we continue to strengthen our foothold in dine-in restaurants, cultivating users local services mindset through high-frequency consumption. Additionally, we're actively expanded into more specific categories such as general in-store hotels and travel. Currently, non-dining related GMV accounts for nearly 40% of our total local services GMV.

The rapid expansion into cities and categories wouldn't be possible without the support of KOLs. In Q3, we focused on KOL operations and policy incentives, increasing the scale of KOLs and continuing to support them in building fan basis and generating high-quality content, further facilitating the full life cycle growth for KOLs resulting in a more than 2/3 quarter-over-quarter increase in DAUs on the KOL distribution platform through initiatives like the Flying Bird project. We also established several benchmark cases. For example, we supported the fast food brand wallets, helping them convert nearly 3 million new customers in Q3 with the GMV growing over 200% compared to Q1.

The driving ecosystem also relies on more refined operations and traffic strategies. For this quarter, we iterated our merchandise engine enhancing cost efficiency and scale with a focus on the quality to price ratio. We optimize the close to conversion of live streaming, short videos and search based on GPN and efficiently recommended converted and uncovered users' consumption needs through more refined traffic and subsidy synergies -- strategies.

Meanwhile, we improved to the platforms management capabilities, establishing a 2B governance system and a 2C user preservation system bolstering consumer trust. We are continuously discovering and fulfilling user needs, achieving nearly 260% growth in daily paying users in Q3 compared to the first half of 2023.

In Q4, our primary focus is to convert more local users further enhanced operations in our existing key cities. We find the operations of merchants and KOLs and continue creating blockbuster merchandise to amplify our reach. Also, we will strengthen users getting the most value free or money mentality from more efficient subsidies and traffic strategies to consistently expand our business scale.

In Q3, quite higher, continued its robust growth momentum. The number of active merchants increased over 120% year-over-year and the average daily resume submissions grow by more than 200% year-over-year. On the job supply side, we proactively expanded the platform's offerings in scarce job categories, iterated our exclusive recommendation model and enhanced its matching accuracy capabilities.

Furthermore, we sustained efforts in commercial exploration by enriching our product lines, optimizing matching efficiency, improving client experience, and establishing a sales system. These initiatives aim to assist merchants with substantial hiring needs in overcoming resume bottlenecks.

[Operator]

The next question comes from the line of Alex Poon of Morgan Stanley.

[Chun Poon, analyst]

[Foreign Language] My question is related to our capital return policy. Given we have reached breakeven and very strong margin improvement and cash flow, can management discuss our cash flow policy and our -- is there room for increasing our capital returns in the future?

[Unknown Executive]

[Interpreted] Thanks to the company's sustained profitability and refined capital management. Our operating cash flow in Q3 experienced a significant inflow of RMB 7.7 billion, showing growth both year-over-year and quarter-over-quarter. As of the end of Q3, our cash and cash equivalents totaled RMB 11.3 billion. When considering other available funds such as time deposits and financial assets, our total available funds amounted to RMB 55.4 billion as of the end of Q3, representing a quarter-over-quarter increase of approximately RMB 5 billion compared to the end of Q2. Since Q2 2022, the total available funds have consistently shown an upward trend in our group's robust cash reserves.

Regarding our cash management policy, we consistently maintain a prudent approach to capital management, prioritizing safety while balancing liquidity and profitability. To show our confidence in the company's operating performance and cash flow and to reward shareholders, we announced a HKD 4 billion share repurchase plan in May of this year. As of now, the cumulative repurchase amount under this plan is approximately HKD 907 million and the total repurchase shares amount to an approximately 15.88 million.

Moving forward, we will continue to assess market conditions and prudently managing the pace of share repurchases. Regarding the dividend plan, it depends on various factors. If there are any new developments, we will update the [ marketing property ].

[Operator]

The last question comes from the line of [indiscernible] from CICC.

[Unknown Analyst]

[Foreign Language] Congratulations on your strong quarter. My question is about AI. And can management share with us the latest progress in AI and what kind of language model application we can have?

[Unknown Executive]

[Interpreted] Earlier this year, we initiated a new AI strategy, setting strategic goals to ensure that we remain at the top tier of domestic technology breakthroughs. We aim to integrate and empower existing business scenarios while striving for a leading advantage through disruptive technological innovation, ultimately, reshaping the market landscape. Our progress is moving forward as expected.

To give you a little more detail, our LLMs, KwaiYii 13 billion and 66 billion models have achieved the leading positions in the industry at a comparable scale. Meanwhile, we have embarked on the development of LLMs exceeding 100 billion in scale and multi-model.

We have also introduced an AI text to image LLM[indiscernible] equipped with robust text comprehension, rich detailed depiction and diverse transformation capabilities. This model can generate a variety of artworks based on open ended text input featuring diverse styles, excellent quality and abundant creativity.

We are currently accelerating the application of LLMs in various scenarios. On the content and consumption side, leveraging the [indiscernible] LLM we have introduced the AI image for common function in the short videos comments section. Users can put creative text to instantly generate vast images of different styles enabling more convenient and entertaining interactions within the comment section.

Recently, we have also initiated better testing of the AI Kwai account that offers to users interactive Q&A image generation, searching of guidance and walk-throughs and text editing services, all tailored to the use case of short video scenarios. On the content supply side, Kuaishou's new editing app KwaiYii and the photography app, Yitian Camera have both been upgraded with multiple AIGC capabilities. This allows common creators to conveniently transform photos or videos into content with multiple styles and effects and to automatically generate captions that match the content.

On the monetization scenario side, the breadth of our LLMs application continues to expand, including generating creative materials for marketing, digital human reporting and interactive communications in quite higher and real estate live streaming.

In essence, every technical and business department within Kuaishou is enthusiastically adopting the new wave of LLM technology. We look forward to and believe that there will be even more LLM applications in our future endeavors.

[Huaxia Zhao, executive]

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

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]