Analysis of Kuaishou’s user growth model!

Kuaishou has released its third-quarter 2021 financial report. There are still many highlights in this financial report. It is not easy to achieve such performance under the current market situation:

Operating revenue was 20.49 billion yuan, a year-on-year increase of 33.4%. Among them, online marketing services (advertising) continued to serve as the engine of revenue growth, with a year-on-year growth of 76.5%.

Although it is still in a loss-making state, the operating loss and non-net loss are not much different from the previous quarter, and the non-net loss rate has been significantly narrowed.

Daily active users (DAU) reached 320 million, a year-on-year increase of 17.9%, a significantly higher growth rate than the previous quarter;

Monthly active users (MAU) reached 573 million, a year-on-year increase of 19.5%, which was also higher than the previous quarter;

The average daily usage time of daily active users reached 119 minutes, a year-on-year increase of 35.0%

If "average daily traffic" is defined as "daily active users x average daily usage time", then Kuaishou's average daily traffic in the third quarter of 2021 increased by 60% year-on-year. It is undoubtedly admirable that Kuaishou has achieved such an achievement when the mobile Internet traffic dividend has been exhausted and the overall traffic pie is no longer growing.

What is even more commendable is that this strong traffic growth is not achieved through unrestrained marketing promotion. Compared with the previous quarter, Kuaishou's sales expenses remained basically flat this quarter, while the sales expense ratio dropped by 1.5 percentage points, but in return it resulted in a faster user growth rate. This is enough to show that Kuaishou has achieved "quality growth".

In my opinion, Kuaishou has found its own growth model, which is sufficient to support its continued progress in the fierce competition and unpredictable macro environment. To sum up:

First, maintain and develop the uniqueness of the Kuaishou platform - strong internal social relationships and the resulting sense of trust, the cross-integration of private and public domain traffic, and a diversified and down-to-earth content style. Kuaishou certainly needs to learn from the strengths of its competitors, but there is no need to become a competitor. The argument that "Kuaishou should become Douyin/Bilibili" is not only narrow-minded, but also unworkable.

In the third quarter of 2021, the number of users following each other on the Kuaishou APP exceeded 14 billion. Kuaishou users have social mindsets and social stickiness that most social media users do not possess. Moreover, Kuaishou is also committed to promoting the conversion of user attention relationships through a single-column push mechanism. Some people believe that single-column push notifications are only suitable for immersive content and not suitable for internal social interaction, but Kuaishou’s successful practice has disproven this point.

Because Kuaishou has strong internal social attributes and an attractive community atmosphere, every type of content can be seen, which greatly increases users' enthusiasm for creating content. The proportion of Kuaishou users participating in content creation is likely to be the highest among similar platforms, which brings a steady stream of new content and new KOLs.

Secondly, by developing live broadcast content, on the one hand, it increases user time and user stickiness, and on the other hand, it provides creators with more monetization opportunities.

I estimate that the main driving force behind the strong growth in Kuaishou's user time spent on video over the past year comes from live streaming content, including traditional show live streaming, pan-entertainment live streaming, emerging e-commerce live streaming, and even more emerging pan-knowledge live streaming. At present, the penetration rate of live broadcast content among Kuaishou’s daily active users has reached 78% (66% half a year ago), fully demonstrating the strong vitality and appeal of live broadcast.

Kuaishou’s e-commerce live streaming content is very developed, forming a complete ecosystem. In the third quarter of 2021, Kuaishou's e-commerce GMV reached 175.8 billion yuan, a year-on-year increase of 86.1%; among them, Kuaishou stores contributed 90% of the GMV. What is commendable is that in September 2021, Kuaishou’s e-commerce repurchase rate was as high as 70% - even among traditional e-commerce platforms, such a high number is rare. For content platforms, it is not difficult to invest resources to achieve e-commerce sales. What is difficult is to form effective repurchases and form a virtuous cycle of the e-commerce ecosystem. There is no doubt that Kuaishou is on the right track.

Third, continuously improve content supply and create vertical content benchmarks with long-term strategic value.

For example, Kuaishou's short dramas are considered a model of success in the entire online video industry. This quarter, the DAU of Kuaishou APP's short dramas reached 230 million. We can even consider Kuaishou to be "China's largest drama viewing platform." This quarter, the number of short dramas on the Kuaishou platform with a cumulative viewing volume of over 100 million has exceeded 850. In the future, Kuaishou can use this as a base to accelerate its penetration into the medium and long video field.

Sports is also an important and advantageous content vertical category for Kuaishou. As the Chinese short video and video-on-demand cooperation platform for the Tokyo Olympics, as of August 2021, the number of views of Olympic-related videos on the Kuaishou APP reached 73 billion times. Sports content is very suitable for dissemination on short video platforms such as Kuaishou, because it is in line with the concept of contemporary society's pursuit of a healthy lifestyle and has a high level of social topicality and dissemination. If the platform can do a good job in user interaction, secondary creation and content operation throughout the entire life cycle, sports can become an important content category. At present, it seems that Kuaishou’s operations in this regard are very successful.

Finally, we will unwaveringly increase investment in technological research and development and expand our technical team. In the third quarter of 2021, Kuaishou's R&D expenses reached 4.2 billion yuan (3.7 billion yuan in the previous quarter); the R&D expense rate rose to 20.6%, close to the highest level among similar companies. Kuaishou’s huge R&D team is constantly investing in big data and other advanced technologies. Investors should welcome such investment because Internet companies are technology companies after all, and R&D investment has far greater long-term significance than market investment. The strategy of many domestic Internet platform companies that focuses on marketing and products but neglects research and development is not in line with the long-term competitive logic of the Internet industry.

In the past two years, the domestic Internet industry has been very hot, it has been easy to achieve growth, and every track has been crowded with similar products and platforms. People seem to have forgotten the essence of business and are blindly urging every company to become a "fast company" and "fast product" and to win by relying on rapid iteration, imitation and unrestrained marketing. By 2021, this extensive growth model of flooding the market has come to an end, and the market has turned to pursue "quality growth."

Beyond any quarterly financial and business numbers, more and more people are beginning to ask: What is unique about this company/platform? What is irreplaceable? What can it bring to creators, merchants and other stakeholders? While achieving its short-term growth targets, has it strengthened its long-term foundation? The excellence of Kuaishou's financial report this period lies not only in exceeding the market consensus expectations, but also in fully answering the above questions:

The uniqueness of Kuaishou lies in its internal social and trust relationships, as well as the community stickiness and commercial value based on trust relationships - the rise of Kuaishou e-commerce is the best proof of this.

Kuaishou’s irreplaceability lies in its diverse content and the organic combination of private and public domain scenarios. Among domestic short video platforms, it is the only one that does the best in the above aspects. Moreover, it is further strengthening its irreplaceability by investing in content verticals such as short dramas and sports.

By developing live streaming content, especially emerging live streaming categories, Kuaishou provides creators with more ways to monetize. Kuaishou e-commerce has become one of the fastest growing important channels for merchants.

In the past year, Kuaishou has made a lot of preparations for the future: orderly product iteration; creating a closed-loop e-commerce ecosystem; expanding the supply of vertical content categories; and investing generously in technology research and development. These measures are not based on development in the next 1-2 years, but for development in the next 5-8 years.

In the past six months, the biggest change in Kuaishou was the two organizational structure adjustments in June and September - especially the second one, which completely transformed the "functional management model" into a "division system", forming four major divisions: e-commerce, commercialization, internationalization and games. The products, operations and growth lines of each business have been integrated and merged; all mid-office functional departments that are strongly related to the business, including R&D, data analysis, PMO, etc., have been split into corresponding business units. This greatly improves the efficiency of internal resource allocation and mobilization, providing internal support for long-term growth.

Kuaishou is still a very young company. It is no exaggeration to say that it is only after two adjustments this year that it truly has an efficient organizational and management system, which is also the result of continuous internal exploration. The better-than-expected performance of the third quarter report only partially reflects the results of the organizational structure adjustment; the next few quarters should reflect this result more and better.

All in all, the third quarter report of 2021 is an important turning point and a "comeback" for Kuaishou since its listing. It has restored healthy growth, consolidated its market positioning, and achieved a balance between short-term and long-term interests, thereby gaining the initiative in the next stage of competition. Kuaishou’s investors, management and employees should all be proud of it. Although competition will remain fierce in the future and the external environment is full of uncertainties, we can at least say that Kuaishou is currently in the best condition since its listing, and it is probably also the best condition in the past two years.

Author: The Phantom Thieves of the Internet

Source: TMTphantom