Kuaishou Technology (KUASF) Q4 2022 Earnings Call

Kuaishou Technology (OTCPK:KUASF) Q4 2022 Earnings Conference Call March 29, 2023 7:00 AM ET

Company Participants

Matthew Zhao - VP of Capital Markets, Investor Relations

Cheng Yixiao - Co-Founder, Executive Director and Chief Executive Officer

Jin Bing - Chief Financial Officer

Conference Call Participants

Kenneth Fong - Credit Suisse

Lincoln Kong - Goldman Sachs

Thomas Chong - Jefferies

Lei Zhang - Bank of America Securities

Operator

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Kuaishou Technology Fourth Quarter and Full Year 2022 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided for management's prepared remarks. The English line will be in listen-only mode.

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

Matthew Zhao

Thank you, operator. Good evening, and good morning to everyone. Welcome to our fourth quarter and full year 2022 financial results conference call. Joining us today are Mr. Cheng Yixiao, Co-Founder, Executive Director and CEO; Mr. Jin Bing, Chief Financial Officer.

Before we start, we would like to remind 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 in this discussion. The company does not undertake any obligation to update any forward-looking information, except as required by law. And also, please refer to the information announced on the IR website as of the 31st of December of 2022.

And also during today's call, management will also discuss certain non-IFRS financial measures for comparison purposes only. And also for a definition of non-IFRS financial measures and a reconciliation of IFRS to non-IFRS financial results, please refer to our results announcement for the fourth quarter and full year report ended December 31, 2022 issued earlier today.

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

Now I'll give the call to Yixiao.

Cheng Yixiao

[Interpreted] Hello, everyone. Welcome to Kuaishou fourth quarter and full year 2020 earnings conference call. In 2022, amidst the challenging macro environment, we remain steadfast in our commitment to elevating an inclusive and diverse user in content ecosystem with extensive video and live scenarios and the mindset of embraced all lifestyles, our platform has attracted a broad user base.

Average DAUs on Kuaishou App hit a record high of 366.2 million. We also continue to connect our dynamic community with our partners, including advertisers and merchants to optimize their experience and financial returns on our platform while creating more monetization levers for our company.

As a result, our total revenue increased by 16.2% to RMB94.18 billion. In addition, we upgraded our organizational capabilities to set a foundation for a even more integrated commercial ecosystem in order to further unleash the monetization potential of our integrated public and private domain. Today, our user content and commercial ecosystem are increasingly vibrant and mutually reinforcing with trust at the core, thereby maximizing the flywheel effect of our platform.

Next, I'll discuss our key business developments in the fourth quarter. First, user growth in ecosystem construction. In the fourth quarter of 2022, we continued to improve our user acquisition efficiency by upgrading our user growth strategy. We also further enriched our creative ecosystem and strengthen the supply of high-quality content. Through our in concept algorithm-based -based learning system targeted at different user groups, we also holistically optimized our operating metrics, such as user time spent and interactions, and improved user retention.

Average years DAUs and MAUs on Kuaishou App both hit record highs in the fourth quarter of 2022, reaching 366.2 million and 640 million, respectively, rather than year-on-year increases of 13.3% and 10.7%, respectively.

In addition, the average daily time spent per DAU on Kuaishou App increased by 12.6% year-over-year to 133.9 minutes. The steady growth in our user traffic demonstrates the strong appeal of our short video and live streaming community. Kuaishou has become a one-stop platform for more users to find useful and interesting short video and live streaming content and to obtain services.

With respect to our user growth strategy, we continued to refine our personalized subsidy strategy and optimized user retention efficiency through algorithms. In addition, we have been actively exploring user acquisition opportunities by leveraging more high-quality native short videos and live streaming content.

As we drive the growth of high-quality users, the vitality of Kuaishou's community has also been continuously increasing. By the end of 2022, pairs of mutual followers on Kuaishou App reached a cumulative 26.7 billion, increasing by 63.4% year-over-year. In addition, in the fourth quarter of 2022, average daily short video interactions increased by more than 50% year-over-year.

In the fourth quarter of 2022, with a sound creative ecosystem as our foundation, we continue to enrich our content supply across various verticals, specifically, we further strengthened our leadership in the short play segment by the end of 2022.

Project Astral produced over 100 short plays, each of which had achieved a cumulative streaming volume of over 100 million as of December 31 of 2022. In addition to ensuring the supply of high-quality short plays, we are actively striving to commercialize our short plays via advertising, e-commerce and paid view ship to build a sustainable, win-win ecosystem for creators and our platform.

In the fourth quarter of 2022, revenue from the brand's partnership in the project Astral more than doubled year-over-year and a number of short-play creditors earning income through e-commerce grew by nearly 35% year-over-year.

With respect to knowledge-based content, we created Kuaishou New Knowledge, , a pan-knowledge IP currently covering more than 10 fields such as education, humanities, art, and science. In the fourth quarter of 2022, the number of news uploads by professional media increased by more than 100% year-over-year and the users who have been prompt to consume news on our platform by major events have gradually become our loyal users.

Meanwhile, popular variety shows have also had a positive impact on the new user acquisition and fortify our brand image in users' mindset. For example, the Jay Chou's Online Friends Club held in fourth quarter hard over 11.3 million current online users at peak and received over 1.05 billion likes making the hot topic across the Internet.

We continuously and constantly optimize our search function. In the fourth quarter of 2022, nearly 400 million users of Kuaishou App used Kuaishou search every month on average, and the average number of daily searches nearly doubled year-over-year. Our efforts to establish users' search mindset not only provide more user insights and more accurate content solutions for users, but also add incremental room for the development of our online marketing and e-commerce services.

Second, online marketing services. In 2022, we faced challenges from a slowdown in the macro economy and online on advertising market. As consumption recovered after the pandemic control policies was adjusted in December, Kuaishou outperformed the industry in growth by virtue of our continuously growing traffic advantages, rich product portfolio, and enhanced organizational efficiency. In the fourth quarter of 2022, revenue from online marketing services increased by 14% year-over-year to RMB15.09 billion, accounting for 53.4% of our total revenue.

In addition, we provided advertisers with comprehensive industry solutions and elevated their performance and conversion efficiency through refined operations, algorithms and products with in-depth integration of industry attributes. With a focus on the holistic health of our advertising ecosystem, we promoted advertiser growth via various channels and through proactive, industry-specific support policies and other measures. The number of our advertisers maintained high year-over-year growth in the fourth quarter.

And also, we can see that the main growth driver of our online advertising revenue in the fourth quarter was our native e-commerce advertising. As the macro economy and consumption gradually recovered, fueled by various e-commerce promotions in the fourth quarter, revenue from our e-commerce merchants continued to grow at a healthier pace, particularly in FMCG, food and beverage industries.

We also improved advertising conversion through a dual strategy, employing both short video and live streaming, which boosted short videos' contribution to our online marketing revenue. In addition, the advancements we made in our original content programs allowed us to tap further into the organic traffic pool. This helped native e-commerce advertisers enhance traffic efficiency across public and private domains and realized long-term operational targets.

With regard to brand advertising, we increased our brand advertising inventory and optimized our sell-through rates by leveraging key promotions and our marketing programs in the fourth quarter. We also boosted this results by continuous iteration of brand products. During Double 11 Sales Promotion, we teamed with the Henan TV to organize the China Chic Ceremony evening gala, which we customized to our advertisers' needs. Through characteristics content planning and co-creations with KOLs, we achieved high-quality content dissemination while realizing commercial values. Advertisers have further recognized the value of promoting brands on the Kuaishou platform, driving an over 20% year-over-year increase in our brand advertising revenue in the fourth quarter of 2022.

Third, our e-commerce business. To foster long-term trust among customers and merchants on our platform, we have taken various initiatives, including building merchandise infrastructure and enhancing our ecosystem governance. These efforts are intended to develop a worry-free, trust-based community for merchants and consumers.

In the fourth quarter of 2022, this disruptions in the merchandise supply and fulfil caused by the pandemic challenged the traditional e-commerce peak season. We responded swiftly to ensure logistics capacity and the availability of e-commerce streamers. These actions, coupled with our algorithm-based to minimizing the pandemic's impact on user experience. As a result, our e-commerce GMV maintained fast growth in the fourth quarter of 2022, up 30% year-over-year, successfully taking our full-year GMV beyond RMB900 billion target.

On the supply side, we focused on long-term initiatives, including merchant operations, branding, and merchandise infrastructure. We continued to onboard new merchants with an emphasis on growing the number of high-quality active merchants by adopting classified and more precise merchant policies.

We upgraded our service provider team to our merchant development department by integrating the capacities of our service providers, product and also traffic capabilities to provide a one-stop service for merchants, especially high-potential, medium to small merchants that may need support, helping them make a smooth transition from cold starts to sales ramp-up [indiscernible] to refine products and operating strategies, updating the store score system based on merchandise quality, logistics timeliness, and service competencies, to better identify high-quality merchants for traffic support and adopted more refined tiered operations.

Furthermore, we continued to strengthen the relationship modeling between long-term high-value users and merchants through algorithms, which significantly contributed the increase in our overall GMV. At the same time, we further improved the accuracy of merchandise recommendation and matching, and the live streaming GPM of public domain traffic in the fourth quarter of 2022 continued to maintain a rapid year-on-year growth. As a result, the number of monthly active merchants grew by over 50% year-over-year in the fourth quarter of 2022, while the average monthly unit store sales of heading merchants increased by double digits year-over-year.

In 2022, we achieved a strong progress in brand e-commerce in the fourth quarter on the back of grand sales promotions during the period. Leveraging high-quality public domain traffic and trust-based private domain traffic in our dual-engine model, we established an end-to-end path from recommendation to transaction, driving consistent growth in brand GMV, overall brand GMV including Kwai Brand Group and accelerated pace quarter-over-quarter and share of total GMV - total e-commerce GMV expanded further to almost 30% in the fourth quarter of 2020.

For Kwai Brand, we focused on the development and launch of Super Kwai Brands event to increase brand exposure, and reinforced brand awareness through the integrated online, offline activities. As a result, Kwai Brands delivered GMV growth of over 80% year-over-year during the November 6 Grand Promotions. We also set up a disqualification system for lower performers to make Kwai brands are able to continue to provide high quality products and services.

As a result, Kwai Brands achieved better results in this return and repeat purchase rate compared with the overall platform. For more established brand merchants, we fully harnessed the high-quality KOL resources and helped refine their product and content operations to better cater to our ecosystem and users. This fostered more blockbuster products and facilitated deeper connections with our brand followers.

In the fourth quarter, levering the various promotions, we strengthened the closed loop from user acquisition toward replacement and repeated purchase, altogether resulting in a dual surge in the brand share of voice and share of sales. In the fourth quarter of 2022, the number of brands with sales above RMB100 million increased by over 50% year-over-year, as more brands have adopted Kuaishou as the main platform for operation, with growing recognition of user value in unique e-commerce ecosystem. In 2022, the number of brand merchants maintained rapid growth, and more than 90% of famous brands were active merchants in fourth quarter of 2022.

To further strengthen our e-commerce merchandising capabilities, we continued to increase the accuracy, diversity, and coverage of product labels, gaining deeper insights into merchandise prices and brand attributes and transaction trends. At the same time, we profiled good merchandise for Kuaishou users based on users' needs before, during, and after sales.

We continuously optimized the system from the moment of merchandise landed on platform, provided relevant, reliable, and high-quality information to elevate users' shopping experience. We also incorporated merchandise characteristics into our algorithm-based recommendation system to enhance user-merchandise matching efficiency and users' product awareness, further fortifying their shopping mentality.

On the consumption side, we continued to improve user conversion efficiency by refining our user operation strategies and constantly are optimizing our smart subsidy promotion. In these efforts, we benefitted from our efficient identification of potential consumers.

In the fourth quarter of 2022, monthly active e-commerce paying users further increased year-over-year and quarter-over-quarter, representing a penetration rate of high double digits. Monthly purchase frequency also improved quarter-over-quarter, while average order value expanded year-over-year and quarter-over-quarter.

Moreover, our user review system gradually matured in the fourth quarter of 2022. By monitoring order specific recommendation scores, we collaborated with the merchants to address those issues or user issues in a timely manner, sequentially improving our platform mobile recommendation score during - 6 Grand promotions and New Year day promotions with increased weight of user satisfaction metrics and algorithms, we constantly decreased negative merchandise feedback and also customer complaint rates, demonstrating notable improvements in e-commerce shopping experience with us.

In addition, upholding the standard of reliable quality and worry-free after-sales services, we have rolled out over 20 consumer rights and interests protection services on our platform. Meanwhile, our coverage of e-commerce orders with trusted-purchase rights grew by 460% compared with 2021.

Next, regarding our live streaming business. In the fourth quarter of 2022, live streaming revenue increased by 13.7% year-over-year to RMB10.03 billion, reaching a quarterly high. Average MPUs for live streaming grew by 20.4% year-over-year to 58.4 million. Our efforts to consistently diversify our content offerings, optimize our live streaming ecosystem, and iterate our algorithms propelled these achievements.

On the supply side, we continue to strengthen our operation with top talent agencies and streamers while attracting more high-quality streamers to join our platform. We also launched a recruitment policy to sign up top-notch streamers and promote the development of live streaming as a profession.

We have attached increasing importance to the healthy and sustainable development of our live streaming ecosystem. To enrich high-quality live streaming content to flying various verticals in our platform, we arranged vertical programs in folk music, Opera and Dance [ph] in our annual live streaming ceremony. Through the Top 100 Streamer Selection, we encouraged leading streamers from all walks of the life to continue providing users with high-quality live streaming content. We also skewed our traffic support to accelerated growth and improved the retention of new streamers, while guiding the traditional KOLs to further enhance content quality.

Through refined recommendations and algorithms, we improved the conversion of users' rewarding behavior in the public domain based on the generalized modeling of users' gifting interests, growing our public domain live streaming revenue by over 150% year-over-year in the fourth quarter of 2022.

In addition, we made continuous efforts to expand live streaming usage scenarios and build associated infrastructure to better satisfy users' and business partners' needs. In the fourth quarter of 2022, average daily resume submissions on Kwai Hire doubled compared with the first quarter of 2022. Meanwhile, cumulative transactions volume on Ideal Housing exceeded RMB10 billion just half a year after its launch.

Finally, in terms of our overseas business progress. In the fourth quarter of 2020, we continue to focus on developing our market presence in key countries, optimizing resource allocation and elevating operational efficiency. These efforts helped us further improve the bottom line of our overseas business. In addition of improving the customer acquisition costs across all channels, our overseas user base achieved healthy, steady growth. Through rich, constructive content offerings, we built the mindsets for consuming news on our platform, as well as short plays and other content verticals in which we excel. Moreover, we kept upgrading our products and algorithms to further strengthen user engagement, with average daily time spent per DAU growing to over 65 minutes in our overseas markets in the fourth quarter. We also steadily improved our commercial ecosystem and enhanced our monetization capabilities, leading to rapid revenue expansions in overseas markets.

On the advertising front, we constantly created success cases and expanded our advertiser base. Through refined customer operations, we empowered advertisers to broaden their brand influence and achieve more growth upside with enhance marketing and campaigns.

In terms of live streaming, we onboarded more streamers and talent agencies, which enriched our content offerings and deepened our live streaming penetration. Meanwhile, we continued to grow our live streaming revenue via refined operations and diverse operational entertainment activities. Additionally, we have been actively exploring e-commerce opportunities in overseas markets.

Looking ahead, we will continue making strides in our content infrastructure algorithms, user scenarios and also the multiple growth engines of our business. These efforts will be in tandem with optimizing our cost structure and improving our operating efficiency. We are confident our efforts to create value for all our ecosystem participants and our inclusive and balanced traffic distribution strategy will draw in more users, creative talent, advertisers and e-commerce merchants to our platform as such, taking our unique trust-based user, live streaming and short video content communities and our commercial ecosystem to new highs.

This concludes my prepared remarks, and due next, our CFO, Mr. Jin Bing, will discuss company's financial performance for the fourth quarter and full year of 2022.

Jin Bing

Thank you, Vishal [ph] and hello, everyone. Our solid fourth quarter performance capped a year of significant business progress against challenges in Kuaishou. In 2022, we achieved high-quality growth in our user scale and content ecosystem and strive to further enhance our monetization capabilities enabling us to deliver increasing value to our users, content creators and business partners.

For the full year of 2022, our Group's total revenues reached RMB94.2 billion, up 16.2% year-over-year. At the same time, we realized a significant increase of operating efficiency, leading to continuous improvement in our financial performance. For the full year of 2022, the operating profit of our domestic business and our adjusted EBITDA at the Group level, both turned positive. In addition, the operating loss of our overseas business in 2022 narrowed by 44.7% year-over-year driven by our ROI-oriented global strategy.

Next, let's walk you through our performance for the fourth quarter of 2022 in details. In the fourth quarter of 2022, our Group's revenues increased 15.8% year-over-year and 22.3% quarter-over-quarter to RMB28.3 billion. This increase was primarily driven by growth of online marketing services and other e-commerce business, which is included in Other services.

Our online marketing services demonstrated strong resilience in the fourth quarter of 2022 as revenue reached RMB15.09 billion, representing an increase of 14% year-over-year and 30.2% quarter-over-quarter. Our comprehensive industry solutions and our dual content strategy employed in short video and live framing delivered strong results in facilitating advertising - advertiser consumer connections and ad conversion. This, coupled with our vast and continuously growing traffic have attracted increasingly more advertisers. The robust growth of our native e-commerce and brand advertising also played an integral part in defending a relatively rapid growth in an uncertain market.

Other services revenue from the fourth quarter of 2022 increased by 37.7% year-over-year and 22.1% quarter-over-quarter to RMB3.16 billion, mainly due to the strong growth in e-commerce revenues. As we build out our merchandise infrastructure and enhance our ecosystem governance to further differentiate our trust-based e-commerce model, our e-commerce GMV reached RMB312.4 billion in the fourth quarter of 2023, increasing 30% year-over-year despite the supply chain logistics disruptions caused by the pandemic.

Our full year e-commerce GMV was RMB901.2 billion, represent an increase of 32.5% year-over-year and demonstrating the further market share expansion of our e-commerce business. Revenue from our live streaming business marked a new quarterly record in fourth quarter of 2022 reaching RMB10.03 billion, up 13.7% year-on-year and 12.2% quarter-over-quarter. This is primarily attributable to the continuous enrichment of our high-quality content and expansion of conceptualize [ph] live streaming user scenarios on our platform, all of which inspire more user gifting behaviors.

During the fourth quarter, average MPUs in our live streaming business increased by 20.4% year-over-year, amounting to RMB58.4 million. Our cost of revenues for the fourth quarter of 2022 increased by 7.9% year-over-year to RMB15.4 billion, representing 54.5% of the total revenues. This increase was due to the increase in revenue-sharing costs and related taxes, in line with our revenue growth. This was partially offset by the decrease in employee benefit expenses and the appreciation of a property and equipment of right of use of assets and amortization of intangible assets.

Our Group's gross profit in fourth quarter of 2022 reached RMB12.9 billion, growing 26.9% year-over-year, representing a gross profit margin of 45.5%, expanding 4 percentage points from 41.5% in the fourth quarter of 2021. This benefited from our optimized revenue mix and improved cost management.

Selling and marketing expenses were RMB9.7 billion for the fourth quarter of 2022, representing a 4.8% year-over-year decrease. This decrease of selling and marketing expenses was primarily due to our more efficient and disciplined spending on user acquisition and retention. Selling and marketing expenses as a percentage of total revenues decreased from 41.9% in the fourth quarter of 2021 to 34.4% this quarter.

Administrative expenses for the fourth quarter of 2022 increased by 12.5% year-over-year to RMB1 billion, primarily due to an increase in the employee benefit expenses, including a related share-based compensation expenses. The fourth administrative expenses represented 3.7% of the total revenues, roughly in line with the fourth quarter of 2021.

Research and development expenses were RMB3.4 billion for the fourth quarter of 2022, decreasing by 14.2% year-over-year, primarily due to the decrease in employee benefit expenses, including related share-based compensation expenses, our R&D expenses represented 12.2% of our total revenues in the quarter, down from 15.3% in the previous quarter and 16.4% in the fourth quarter of 2021.

Our Group's operating loss narrowed to RMB1.2 billion in the fourth quarter of 2022, improving substantially from the loss of RMB2.6 billion in the third quarter of 2023 and RMB5.8 billion in the fourth quarter of 2021 as we achieved an operating profit of RMB1.3 billion at our domestic business and a significant loss reduction in overseas market.

Operating margin expanded by 1.3 percentage points year-over-year and 6.9 percentage points quarter-over-quarter to negative 4.4% in the quarter from negative 23.7% in the fourth quarter of 2021 and negative 11.3% in the prior quarter.

Our Group's adjusted net loss also narrowed significantly to RMB45.3 million for the fourth quarter of 2022 and from RMB671.9 million in the third quarter and RMB3.6 billion [ph] in the prior year period, and our adjusted net margin improved 2.7 percentage points quarter-over-quarter and 14.4 percentage points year-over-year.

Our balance sheet remained healthy with cash and cash equivalents, time deposits, restricted cash and wealth management products of RMB44.7 billion as of December 31, 2022. Thanks to our multiple monetization revenues and efficient working capital management, we generated positive operation as cash flow of RMB2.2 billion for the full year of 2022.

Let me briefly review our performance for the full fiscal year of 2022. For the full year 2022, our Group's total revenues reached RMB94.18 billion, up 16.2% year-over-year. These included on online marketing services revenue RMB49.04 billion, increasing by 14.9% year-over-year. Revenue from live streaming business increased by 14.2% year-over-year to RMB35.39 billion. Revenue from other services, including our e-commerce business reached RMB9.75 billion, represent an increase of 31.4% year-over-year. Gross profit margin expanded by 2.7 percentage points year-over-year to 44.7% in 2022.

For the full year of 2022, our adjusted net loss was RMB5.75 billion, significantly narrowed from a loss of RMB18.85 billion in 2021. Our adjusted net margin was negative 6.1%, improving 17.2 percentage points year-over-year. Adjusted EBITDA turned positive and reached RMB1.81 billion in 2022 compared to negative RMB12.95 billion in 2021.

In conclusion, as we weathered the external challenges in 2022, we took important steps to strengthen our infrastructure, monetization capabilities and efficiency. We are now on our way to establish more integrated user content and commercial ecosystems, which sets us on a stronger footing for our future business growth.

Going forward, we will strive to further unlock the monetization potential across our business segments while continuing to scale our trust-based ecosystem. We'll also continue to drive operating efficiency improvement and cost reductions, aiming to deliver long-term sustainable profitability.

This concludes our prepared remarks. Now we're open for questions. Operator, please go ahead.

Question-and-Answer Session

Operator

[Foreign Language] Our first question comes from the line of Kenneth Fong from Credit Suisse. Please ask your question.

Kenneth Fong

[Foreign Language] Thank you management for taking my questions and congrats on another strong quarter. As we see consumption recovery along with Chinese New Year, can management share with us some of the latest trend of your live streaming e-commerce business? As we see increased competition with some e-commerce platform by stepping up subsidies, how would we respond to that? Thank you.

Cheng Yixiao

[Foreign Language] Thanks for your question. Our e-commerce business has been doing well since the beginning of 2023. During the Chinese New Year holiday, we launched Spring Festival nonstop activities on our platform to encourage e-commerce live streaming. As a result, our e-commerce GMV achieved healthy growth compared to the Chinese New Year period last year.

After the Chinese New Year, we further capitalized on the gradual consumption recovery through events such as the March 8 Shopping Festival. During the promotion, sales of home furniture, 3C, fresh produce, plants and pet products achieved strong growth momentum.

Sales of our advantageous nonstandard product categories such as apparel, beauty and cosmetics also continued to grow rapidly. Overall GMV of brand and merchandise during the shopping festival more than doubled year-over-year, driven by both brand self-operated live streaming and KOL live streaming, as well as our content-based product recommendations.

[Foreign Language] So for live streaming e-commerce, efforts to apples price comparisons like shelf-based e-commerce are difficult. Live streaming rooms they usually have unique product SKUs and pricing strategies catering to the needs of fans and potential buyers on our platform.

Given Kuaishou's natural advantage in community attributes, users purchasing behaviors are not only driven by price, but their core purchasing power is also based on their trust in the streamers and our platform.

Of course, while paying attention to merchants profitability, we also guide merchants to enhance sales conversion through affordable high-quality products. To better respond to the competition, we believe rather than engaging in price wars, it's more important to build our own strength in the e-commerce business, mainly continuously or continually improving product quality and operational efficiency. Next, I would like to share some of our latest priorities with respect to e-commerce.

[Foreign Language] First, we continue to strengthen the governance of our e-commerce ecosystem and reinforce trust as the cornerstone of our business. This year, we created a more systematic process-based dynamic user recommendation mechanism and consumer complaint system, featuring real-time monitoring of issues raised and timely ratifications.

Meanwhile, we integrated shopping experience scores into the system to recommend higher-quality merchants and products to users. We also continue to expand and strengthen user rights and interest protection, increasing the coverage of each of our consumer rights products to encounter [ph] users trust in our platform. Regarding fulfillment, we continue to improve logistics and update customer services, our after sales service system and product functions altogether, elevating consumer shopping experience.

[Foreign Language] Second, to enhance algorithm matching efficiency, we continue to fortify our merchandising infrastructure and capabilities and deepen our understanding of merchants and products. We make product recommendations based on users' behaviors to meet their potential consumption needs, which leads to inconstant matching [ph] accuracy. This not only drove continued improvement in the conversion efficiency of public domain traffic in the fourth quarter, but further reinforced our private domain GPM. As a result, overall live streaming and short video GPM of our platform rose by nearly 30% quarter-over-quarter.

[Foreign Language] Third, we will significantly step up our efforts this year to promote brand e-commerce. We upgraded our all domain solutions for brands, encouraging them to focus on store operations and deliver solid self-operated live streaming, while leveraging high-quality KOL resources to assist with product distribution and enhance brand influence.

Meanwhile, we promoted the complementary usage of short video and live streaming and establishing end-to-end part from product recommendation to transaction. Going forward, we will emphasize pan shelf scenarios such as search and shopping mall to capitalize on user shopping mentality. In addition, we rolled out the stream initiative earlier this year to encourage merchants with high-quality content creation capabilities and well-recognized products to self-operate live streaming on our platform. By offering them incentives and traffic support, we hope to help more high-quality merchants and brands take root on Kuaishou.

[Foreign Language] With the deeper insights we acquired into merchants, products and users, we will more carefully think about and plan our shopping mall to meet users' intent-based shopping needs. Currently, for Kuaishou, the shopping mall remains a new traffic scenario that has yet to be fully tapped. We believe, as users grow accustomed to shopping on Kuaishou's platform with an increasingly optimized shopping experience, they will design more than live streaming and push promotions.

Moreover, it is clear that users shopping and mentality are strengthening on our platform, as demonstrated by the 267% year-over-year increase in the number of search orders during the March 8 Shopping Festival. In the future, more intent-based shopping from users will further drive our GMV growth.

[Foreign Language] On a whole, looking ahead into 2023, we're confident that Kuaishou's e-commerce business will continue to grow at a faster pace than the industry and create more value for consumers and merchants. Operator, next question, please. Thank you.

Operator

[Foreign Language] Our next question comes from Lincoln Kong of Goldman Sachs. Please ask your question.

Lincoln Kong

[Foreign Language] So thank you management for taking my questions. My question is about the commercialization and advertising business. So I want to understand more in terms of how advertising customers' sentiment improvement, maybe this whole at macro recovery situation? What about to those annual contracts or progress as well as how should we think about the overall 2023 advertising revenue growth outlook? Thank you.

Cheng Yixiao

[Foreign Language] Thank you for your question. We are in the middle of signing full year framework agreements with advertisers. Overall, they are cautiously optimistic about 2023. Given the current pace of economic recovery and the lag in the advertising market versus the overall economy, we expect a noticeable rebound in the online marketing services market in the second half of 2023.

We expect our native advertising services to maintain its rapid growth momentum, driving the continuously and continued outperformance of our advertising revenue versus the overall market. Easing of external advertising services, as our key external advertisers businesses are remaining online, we expect this segment to gradually resume growth in the second half of this year.

Our industry verticals with the resumption of off-line activities and the gradual consultant [ph] recovered, we believe advertisers ad budgets will improve in the consumer staples such as food and beverage, personal care, maternal and baby care, as well as tourism and entertainment.

In addition, we expect to see the momentum from industries that will benefit from the government's economic policy support, such as real estate, transportation, home furniture and furniture’s [ph] Our major e-commerce clients have shown clear growth expectations. We also expect gaming and non-end-use media customers to be more willing to place ads and recovery of budgets from the development and applications of the dating and tool apps as well as SurePay.

[Foreign Language] For online marketing services, just like with e-commerce, our priority this year is to build strength from within and to consistently increase advertisers' ROI on our platform. Specifically, first, we will continue to enhance the efficiency of advertising traffic. We will more accurately target users based on the traffic value of content and advertising.

For example, we noticed that there is still a considerable difference between users interested in gaming and financial industries on our platform and those being as closed to related ads. Yet conversion efficiency differs widely between interested and non-interested users and is a key to ROI. As such, we will explore how to better identify and understand users' preferences and commercial value through content to optimize traffic allocation, hence, enhancing conversion rates for advertisers and improving post-click ROI.

[Foreign Language] Second, we are further building out our advertising product capabilities and upgrading our services. With respect to data infrastructure by enhancing our algorithms, cooperative and allocation capabilities, we aim to our advertising model to reach a broader audience as well as improve matching efficiency and enable seamless ad placements.

At the same time, the data generated in the process will be stored in a DMP data management platform of our data-driven marketing engine, magnetic kaleidoscope, significantly elevating our labeling and targeting capabilities. To further expand our traffic, we plan to launch search ad products. In the fourth quarter of 2022, search traffic nearly doubled year-over-year, which aided by the strong conversion efficiency of search ads allow us to develop a sound closed-loop system of content, search and advertising, bringing new upside to our advertising business.

We will also actively explore a new model called Magnetic Alliance by leveraging the tremendous traffic, strong user stickiness and value on creators private domains, we will expand high-quality traffic resources and provide advertisers with more personalized services on creators homepages, realizing an all-win outcome between users, KOLs and advertisers.

[Foreign Language] Third, we introduced a new business philosophy of platform-wide ROI. We noticed recently that advertisers' needs are changing. They are beginning to care more about long-term healthy growth and income certainty, which requires timely adjustments on our side to accommodate their shift from pursuing supervision targets to deeper goals.

As such, at our recent Kuaishou Magnetic Conference for commercialization, we unveiled a new concept of platform-wide ROI, which aims to promote advertisers' overall business growth. To that end, we screened for high potential users from brand target user groups through algorithms and the 5R [ph] full user life cycle model, leveraging advertisers, content, followers and user assets on our platform.

For the full domain portfolio-based approach for placement budgets, clients can optimize their overall operation efficiency across all our private and public domains, achieved an end-to-end sales funnel conversion from brand promotion to performance ads and eventually transactions, ultimately ensuring the realization of their overall ROI goals on Kuaishou.

[Foreign Language] In conclusion, with all these efforts, we are confident that we will capture the opportunities afforded by the economic recovery in 2023 to accelerate the development of our online advertising services, as we provide better services and ROI to advertisers, we will continuously gain market share in China's online advertising markets. Operate your next question, please. Thank you.

Operator

[Foreign Language] Our next question comes from Thomas Chong with Jefferies. Please ask your question.

Thomas Chong

[Foreign Language] Thanks management for taking my questions. My question is about our medium-term DAU target of 400 million. How should we think about the user growth in 2023 as well as another cost trend? Thank you.

Cheng Yixiao

[Foreign Language] Thanks for your question. As I mentioned earlier, in 2022, we continue to enhance customer acquisition efficiency across major user growth channels, refined user growth and maintained and maintenance algorithms and further improved our retention ROI through high-quality content offerings and constant iteration of trapped [ph] allocation strategies. Thanks to these efforts, our DAUs registered robust year-over-year growth of 15.4% despite significant year-over-year reductions in our user growth and maintenance costs in 2022.

[Foreign Language] Meanwhile, as short video penetrates deeper into the entire user base, we are keenly aware of the increasing difficulty and driving future user growth. This will gradually slow down the rate of improvement in our unit acquisition cost. Nevertheless, we will strive to achieve a high-quality visit growth target within ROI constraints, while strictly controlling spending in user acquisition and maintenance.

[Foreign Language] Specifically, our user growth strategy is threefold. First, we will continue to improve customer acquisition efficiency and user retention through refined user growth, operations, content strategies and algorithms. Regarding user subsidies, we will promote personalized and functional subsidies while guiding the encouraging more users to expand our platform by providing high-quality content, products and services.

Second, we will strengthen user acquisition through high-quality native content. We will build a richer high-quality content pool using advanced audio and video technology, as well as algorithms aided by mutual and manual screening and through cross departmental corporation. Better native short video content will attract more users to join our platform.

Lastly, we will launch dedicated user growth programs, targeting specific demographics, especially those we have underpenetrated. Meanwhile, we will maintain our core user base advantage in the key second and third-tier cities as well as towns and villages. As such, in 2023, we believe we can realize steady year-over-year user growth. In the medium term, we are confident we will cross the $400 million mark in DAUs on a quarterly basis in the second half of 2024. Operator, next question, please.

Operator

[Foreign Language] Our next question comes from Stuart Finjan [ph] of CICC. Please ask your question

Unidentified Analyst

[Foreign Language] Thanks management for taking my question. My question is about the progress of our new business, such as local service and Kwai Hire [ph] I appreciate a lot if management could give us more color on that. Thank you.

Cheng Yixiao

[Foreign Language] Thanks for your question. The local services segment has attracted a lot of attention. Let me share some of our reflections. Currently, local services have a low online penetration rate, but demand of local services merchants for traffic continues to increase as they work to strengthen consumers' consumption mindset through online channels and content, leading to significant growth potential in online penetration and monetization.

Since videos can display goods and services more vividly and provide merchants with higher conversion efficiency. Short video platforms are becoming an important choice for more and more local services merchants to drive incremental growth. Kuaishou is particularly well positioned as the third largest app in China sound user base in the second and third tier cities where local service are relatively underpenetrated.

Recently, the number of users with daily consumption related to local services has exceeded 100 million on our platform. By leveraging KOLs to create high-quality content, combined with actual recommendation algorithms and new goods to person model we are building, we are confident that we can post the local services consumption mindset among Kuaishou users.

[Foreign Language] At present, our work in local services mainly focus on the following. As we completed our team set up, we have developed an increasingly mature set of strategies and tactics. Following our valuation of Kuaishou's advantages in traffic and content and in consideration of local users' consumption habit and merchandise supply, we chose a number of key cities as our MVP, and we are now in the process of validating our model.

On the supply side, we primarily work with the service providers and third-party platforms to continuously enrich our supply while providing service providers benchmark cases through a few direct business operations. Moreover, through coordinating a vast number of KOLs and users resources, we will accelerate the development of user mindset with a focus on in-store catering and gradually expanding to other business categories. At the same time, we have conducted detailed evaluations of consumers in diverse consumption scenarios, aiming to further enrich our product functions.

To summarize, we will maintain operational flexibility based on gradually maturing strategies to respond to the growing market competition. As a comprehensive service platform with unique advantages in traffic, content and community, we believe Kuaishou is capable of building a bridge to better connect merchants resources with users need.

[Foreign Language] Regarding quite Kwai Hire since its official launch over a year ago, we have made rapid progress across various operating metrics. Average daily resume submissions in the fourth quarter of 2022 doubled from the first quarter with peak submissions exceeding 500,000 during the spring festival period earlier this year. Furthermore, we have made a steady advancement in rich and job posting, solidifying data infrastructure and exploring a viable business models.

In terms of our enriched job postings, our platform currently covers 22 Level 1 job categories and over 200 Level 2 categories. In addition to manufacturing jobs, active positions in catering, housekeeping and cleaning, supermarket and retail and other service industry categories continue to increase. Growing job categories will further meet the diversified job seeking needs on our platform's massive user base.

In terms of data infrastructure, we are focused on enhancing resume quality and improve the data infrastructure by developing end-to-end process metrics. As to business model explorations, Kwai Hire, we adopt the CPQL or cost per qualified lead model for monetization in the future. We believe with another quarter or two of exploration, Kwai Hire's business model will gradually mature and establish a more advanced and effective path to hiring compared with the traditional recruitment channels for blue collar workers. Thank you, operator. Next question, please.

Operator

[Foreign Language] Our next question comes from Lei Zhang from Bank of America Securities. Please ask your question.

Lei Zhang

[Foreign Language] Thanks management for taking my question. My question is mainly about you ChatGPT. Can you share with us any impact to online shop retail industry? And do we have any strategic move regarding the ChatGPT or AI area? Thank you.

Cheng Yixiao

[Foreign Language] Thanks for the question. Leveraging our artificial intelligence team, over years, Kuaishou has accumulated a deep technological foundation of generative AI, especially large language models, LLMs and multimode pre-trained large models, AITC tools, et cetera, as well as these technologies applications. So with respect to LLMs, we launched a special projects towards the end of last year covering LLM training, automatic content creation and generation and dialogue system development across modo content generation and other fields.

In addition to tax, we are making active deployments in content generation across diverse modalities such as voice, image, video and 3D graphics. Kuaishou's multimodal content understanding and generation technologies are becoming increasingly mature.

[Foreign Language] Looking forward, we believe there are rich scenarios and significant potentials in integrating generative AI into our business. We will allocate manpower and other resources in a rational manner, make long-term investment in the innovation and breakthrough of related technologies and promote their organic integration with our business. Back to you, operator. Thank you.

Operator

[Foreign Language]

Cheng Yixiao

[Foreign Language] 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.