About us: Aurora Mobile (NASDAQ: JG) established in 2011, is a leading customer engagement and marketing technology service provider in China. Its business includes notification services, marketing growth, development tools, and data products. As its sub-brand, MoonFox Data is a leading expert in data insights and analysis services across all scenarios, aiming to help companies gain market insights and empower precise decision-making.

CHENGDU, China, Feb. 26, 2024 /PRNewswire/ — Based on CNNIC data, as of June 2023, the number of short video users in China has reached 1.026 billion, accounting for 95.2% of the total netizens, second only to instant messaging applications. Nowadays, short video has become the main channel for network users to obtain information, entertain & socialize, and spend & shop.

In the field of short video, there is still a competitive situation between TikTok and Kwai. Comprehensive video platforms such as Bilibili are accelerating the layout and creating short video content that fits the tonality of their own platforms. As a leading platform, Kwai has made frequent moves in the strategic direction recently. From users to business development, does Kwai have the potential for sustainable growth in the future?

I. With the content being the key, the quantity and quality of users of Kwai are rising 

Data source: Kwai’s official financial report; Data retrieval cycle: July to September 2023

User assets are the key to the operation and business development of short video platforms. Based on the official financial report data, the average DAU of Kwai in 2023 Q3 increased by 6.4% YoY to 387 million; In the same period, the average MAU increased by 9.4% YoY to 685 million, both of which reached record highs. Moreover, in Q3, DAU used the platform for an average of 129.9 minutes, with a YoY increase of 6.9%.

The steady growth of user scale and usage duration is inseparable from Kwai’s strong investment in content.

First of all, Kwai has actively laid out vertical categories content and obtained exclusive rebroadcasting rights. For instance, Kwai was identified as the rights holding broadcaster and the official short video sharing platform of the 19th Asian Games Hangzhou, and the related video views reached 53.1 billion. Meanwhile, as early as 2020, Kwai began to lay out segmented sports events fields such as rugby and snooker, and continued to purchase copyrights and enrich the contents of the sports events.

Secondly, short plays are another highlight of Kwai’s content. As disclosed in the financial report, it launched the “Xingmang Project” in the summer movie season, and launched 85 short plays. Wherein, 21 have exceeded 100 million views, covering a variety of themes. Kwai began to lay out this field around 2019, with a considerable reserve of short plays and complete experience in supporting and encouraging creators.

Finally, the creator ecology under UGC. Based on the data of Kwai Guanghe Creators’ Conference in August 2023, the number of works published by Kwai creators increased by 14.8% in the past year. Wherein, for instance, the number of works published by users with over ten thousand followers increased by over 46.3% in 2023 Q2. The richness of video content on Kwai has been further deepened. For instance, phenomenon-level contents such as the “Kwai Village BA” basketball game frequently appears.

Data source: Kwai’s official financial report; Data retrieval cycle: January to September 2023; The number of interactions includes likes, comments, shares, etc. The data is for reference only.

High-quality content with rich categories on Kwai attracts a huge amount of users. Its content distribution mechanism, combined with unique community atmosphere, further improves users’ activity & interactivity. Based on official data, the number of users following each other on Kwai reached 32.2 billion in 2023 Q3, with a YoY increase of nearly 40%. The daily interaction times have exceeded 9 billion, and the overall trend is steadily increasing.

Different from TikTok’s traffic distribution logic, which pays more attention to the index weight, Kwai pays more attention to the content in the initial stage of distribution, while ensuring that small and medium-sized creators can get a certain amount of traffic support. In terms of the number of followers, users with less than 500,000 followers account for a relatively high proportion on Kwai, and small and medium-sized creators are ecologically prosperous.

In this context, Kwai has enlisted more realistic video content that is close to life and focuses on realism, attracting users’ likes and interaction. Such content and harmonious community environment further strengthens Kwai’s core position in markets of lower-tier cities.

Data source: MoonFox iApp; Data retrieval cycle: December 2023; The statistical results only contain App data, excluding ecological traffic data such as web pages, applets and Kuaiyingyong.

Based on the MoonFox Data, as of December 2023, over 42.8% of APP users on Kwai are located in third-tier and fourth-tier cities. More “down-to-earth” video content attracts users in markets of lower-tier cities, which continues to inject vitality into the platform.

Meanwhile, from the perspective of users’ age, Kwai is accelerating to break through related fields and continuously enriching the user structure. The proportion of Kwai users aged 16-25 and over 46 reached 6.9% and 23.9% respectively, both of which increased YoY. On one hand, Kwai vigorously developed entertainment live streaming & sales live streaming, and signed up with new streamers to join, and quickly attracted the attention of the Generation Z; On the other hand, a large number of elderly creators have sprung up on Kwai. With the decrease of learning cost and shooting difficulty, more elderly people began to join the Kwai platform.

To sum up, the construction of content has diversified the structure of Kwai users, steadily increased the number of users and strengthened their willingness to interact. Excellent user assets also provide a foundation for Kwai’s performance growth and business development.

II.   Marketing services have developed steadily, and e-commerce business has shown its potential

In 2023 Q3, Kwai’s performance increased by 20.8% YoY to RMB 27.948 billion. Meanwhile, Kwai’s strategy of reducing costs & improving efficiency has achieved remarkable results, with a gross profit margin of 51.7% in the same period, increased by 5.4% YoY. From the perspective of all business lines, its revenue has achieved a steady YoY growth. Relying on high-quality content and users, the overall business has showed a high-quality growth trend.

Data source: Kwai’s official financial report; Data retrieval cycle: Third quarter of each year from 2019 to 2023.

In recent five years, online marketing business has developed rapidly, and has gradually grown into the pillar business of Kwai. By 2023 Q3, online marketing service revenue reached RMB 14.69 billion, with a YoY increase of 26.7%.

Kwai began to explore ways to gain revenue by displaying advertisements in 2017, and launched the brand of Magnetic Engine (e.Kwai.com) in 2019. Subsequently, it builds marketing tools, serves advertisers and content creators, and meets marketing needs to improve delivery efficiency. We believe that the competition in the current overall marketing market is intensifying, and the cost of delivery is rising. The steady growth of Kwai’s business in this field stems from the diversity of its content ecology and the marketing strategy around streamers.

Compared with the traditional promotion of purchasing traffic, the current advertisers pay more attention to brand marketing, lay emphasis on understanding the needs of potential users, and tend to reach users by registering corporate accounts and producing official content, so as to achieve the transformation of private domain traffic. In this context, content ecology is very important. Taking the game industry as an example, based on official data, as of August 2023, the DAU of Kwai’s game content has exceeded 200 million, with a YoY increase of 30%; Meanwhile, the DAU of game live streaming reached 118 million, with a YoY increase of over 22%. Kwai’s increasingly rich content matrix provides advertisers in various fields with opportunities to build brand image and reach users. We believe that with the further diversification of Kwai’s user structure, advertisers’ delivery willingness will be further strengthened.

Comparatively speaking, the proportion of live streaming business lines of Kwai has declined as a whole, but the revenue scale is still considerable. Kwai has developed its layout in the fields of professionalization & training of streamers with high-quality contents. Meanwhile, it enhances the “Live Streaming +” service capability, and accesses to traditional industries to empower development through Kuaipin and Lixiangjia. But in contrast, Kwai live streaming and content have the most significant empowerment on e-commerce business.

Data source: Official data and open market data; Data retrieval cycle: In Q3 from 2019 to 2023; GMV is derived from official open and market data, which is not precise and is for reference only.

Based on the financial report data, in 2023 Q3, Kwai’s revenue from other services reached RMB 3.539 billion, with a YoY increase of 36.6%, mainly due to the growth of e-commerce business. In the same period, the GMV of Kwai reached RMB 290.2 billion, with a YoY increase of over 30%. Currently, attracting traffic by short videos & consumption by live streaming are the core ways for Kwai to develop e-commerce business.

Contents are the key to recommend products (“endorsement”). The many brands launches OGC(Official Generated Content) to influence consumers’ minds; PUGC(Professional User Generated Content) powered up, connecting with the official streamers platform. Based on the financial report data, Kwai’s GMV by short videos in 2023 Q3 has doubled YoY. Meanwhile, the GMV generated by searching increased by nearly 70% YoY. Endorsement by content realizes the cultivation of consumer willingness from zero to one, which is different from shelf/comprehensive e-commerce, attracting users through customized and scene-based content, and guiding them to pay attention to and search for products.

A live streaming room is the main place for conversion, which is, “already purchased”. Currently, the live streaming e-commerce market scale is close to RMB 4 trillion, and the market competition is fierce. On the basis of giving full play to the traffic advantages as a leading short video platform, Kwai actively adjusts its strategy to promote the ecological diversification of live streaming.

On one hand, based on the enormous content and live streaming ecology, Kwai has proposed the “Trust” e-commerce model, and specified its keynote. First of all, attract businesses. For instance, invite leading brands of cooperation to settle in, support emerging force brands to get low-priced goods, and rely on brands and followers to establish a platform image of trustworthy products and low prices. Secondly, guarantee after-sales service. For instance, establish a “Trust Purchase” specification and urge merchants to open protection rights, so as to improve the repurchase rate on the platform.

On the other hand, streamers with a medium number of followers on Kwai are rapidly rising, and the dependence on streamers with huge number of followers has declined. Taking the data of the Double Eleven period in 2023 analyzed by Feigua Data as an example. On Kwai, the number of streamers with a total GMV of RMB 50-100 million reached 35, and the total GMV was RMB 2.63 billion, both of which increased significantly YoY; However, the number of streamers with a total GMV of RMB 100-500 million, over RMB 500 million and the total GMV remained the same, and some streamers with huge number of followers experienced a decline.

To sum up, Kwai relies on “short video content + live streaming” to give full play to its platform advantages, and its e-commerce business is booming. We believe that Kwai is now at the starting point of the second round of performance growth, and Kwai’s diversified user assets and content will be more effectively applied around the e-commerce business. Meanwhile, fast-growing businesses such as short plays can also be applied to the field of e-commerce, providing advertisers with channels to promote and reach consumers.

III. Overseas Market, AI – Boosters for Kwai’s business prosperity

Besides core revenue and strategy, we can still see the growth potential of Kwai in the future.

For instance, in terms of developing overseas markets, in 2023 Q3, Kwai’s overseas business income reached RMB 652 million, with a YoY increase of more than 2 times, and its operating loss decreased by 62.4% YoY. From Kwai (overseas version of Kwai) to Snack Video, Kwai, which focuses on overseas markets, also deeply develops segmented user groups, pays attention to emerging markets such as Brazil, and reaches overseas young users around short plays and other content. In the future, short plays will be the key to Kwai’s rapid overseas expansion and user stickiness. Relying on the mature short play development in China and user retention model, Kwai can quickly copy the business logic and combine it with overseas IP for export. Relying on overseas markets, the business model of paid short plays has great potential.

Taking AI as an example, AIGC (Artificial Intelligence Generated Content) are being used for virtual human live streaming, and intelligent customer service is enhancing the functions of Kwai and its products; Kwai AI Dialogue has been launched, providing intelligent Q&A products based on large language model, and optimizing user search experience. AI technology has a high degree of overlap with Kwai’s business line, which can be used in marketing, e-commerce and other dimensions, so as to help customers reduce costs and increase efficiency. In the future, we believe that AI will further integrate with users’ search behavior, more effectively and naturally guiding user traffic and enhancing conversion efficiency of the marketing side.

Not limited to this, in the future, with the empowerment of more external technologies/fields and the assistance and collaboration of internal businesses, we believe that Kwai will gradually enter a new round of stable growth, and its business system around content and users will be further improved and enhanced.

Aurora-Moonfox consistently monitors industry development and regularly tracks corporate performance. The following is our research report on industry hotspots:

• 《Image-Text Content, Hot Items, and Seeding Drive the Rapid Growth of RED Community》；
• 《Tencent focuses on the WeChat ecosystem and leverages mini-programs to create the second growth curve》；
• 《NetEase Q3 Financial Report Game-driven Multi-segment Growth》；
• 《Ctrip achieved multiple-fold revenue growth in Q3, surviving through the harsh winter amidst industry recovery》

If you need a report, please contact us to obtain it.

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