Kuaishou Technology (OTCPK:KUASF) Q1 2022 Earnings Conference Call May 24, 2022 7:00 AM ET
Heather Diwu – Investor Relations
Su Hua – Co-Founder, Chairman & Executive Director
Cheng Yixiao – Co-Founder, Executive Director & Chief Executive Officer
Jin Bing – Chief Financial Officer
Conference Call Participants
Alex Poon – Morgan Stanley
Thomas Chong – Jefferies
Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Kuaishou Technology First Quarter 2022 Financial Results Conference Call. Please note that English simultaneous interpretation provided from management’s prepared remarks. This English line will be in listen-only mode.
I will now turn the call over to Ms. Heather Diwu, Director of Investor Relations at Kuaishou Technology.
All right. Thank you, operator. Good evening and good morning to everyone. Welcome to our first quarter 2022 financial results conference call. Joining us today are Mr. Su Hua, Co-Founder, Chairman and Executive Director of the Board of Kuaishou; Mr. Cheng Yixiao, Co-Founder, Executive Director and CEO; and Mr. Jim Bin, 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 its discussion. The company does not undertake any obligation to update any forward-looking information, except as required by law.
During today’s call, management will discuss certain non-IFRS financial measures for comparison purposes only. For the definition of non-IFRS financial measures and reconciliation of IFRS to non-IFRS financial results, please refer to our results announcement for the first quarter ended March 31st of 2022, issued earlier today.
For today’s call, management will use Chinese as the main language, a third-party interpreter will provide simultaneous English interpretation mainly prepared remarks section and consecutive interpretation during the Q&A section. Please note that English interpretation is for convenience purposes only. In case of any discrepancy, management statement in the original language will prevail.
I will now hand the call over to Su Hua.
Hello, everyone. Welcome to Kuaishou’s first quarter 2022 earnings conference call. In the first quarter of 2022, we continue to use full videos and live streaming as vehicles and meet the online needs of more users through content technology and other assets. We help the users to discover more interesting and resonating content and content creators to improve their unique brand happiness.
The trust and connection have become stronger and further boosted user stickiness and engagements, as we made available more touch points, more interesting, useful and beneficial content. In the first quarter of 2022, the number of our DAUs and MAUs in China continue to set new record highs and in total traffic also maintained the momentum of rapid growth.
On the other hand, through visualized the medium and technology services capabilities, we have kept empowering more industries, advertisers and merchants, helping them connect with more users, optimize transaction experience and empower the digital economy.
In doing so, we created value for social economic development, recently a new round of pandemic broke out in China, affecting life of certain citizens and development of enterprises, we immediately open up the pandemic assistance portal aiming to help users solve their liability issues in critical times and help more enterprises carry out production operations steady and orderly. We launched an e-commerce Warm Spring Program 2022 and online marketing pandemic refund compensation policy.
We have also supported farmers by organizing activity themed fighting in pandemic and protection spring harvest with help of technology. We have used content front [ph] to contribute against the pandemic efforts to our country and outcome difficulties together.
Next, Yixiao will share with you the business development details.
Thank you, Su Hua. I would like to talk about the main progress and results in first quarter. Let’s start with the user growth and ecosystem cultivation. In the first quarter of 2022, our DAUs and MAUs hit historical high. DAUs reached 346 million, increasing by 17% year-over-year. MAUs was 598 million, up by 15% year-over-year.
On top of growth in user base, user stickiness also kept increasing, with DAUs and the MAUs ratio reached 57.8%. Average daily time spent per DAU was 128 minutes, increasing by 29% year-over-year. As for traffic of total, it grew rapidly by over 50% year-over-year.
While the first quarter is typically the peak season for user and traffic growth, these achievements were also resulted from our improved efficiency and user growth and user retention, persist implementation of our differentiated growth approach and our past distinctive features such as social attributes, content operation and technological operation to offer unique and premium user experiences.
With the Chinese New Year, coincides with the Beijing Winter Olympics in the first quarter, we successfully held joint operation event of Spring Festival and Winter Olympics, leveraging our features, user campaigns, policy content reserves and extensive operational experiences. The ban attracted millions of new users and broad interactive users back to Kuaishou.
In addition to procuring rights or the procuring rights for quality content, we’ve also built a comprehensive content matrix, including secondary creations and UGCs, driving active content creation in the community.
We also did well in the generate content operations and content supply as the main continuous user consumption. Despite a sharp cut in our event budget, we gained greater economies of scale and better user retention and significantly improved efficiency, which was different from last year.
After Chinese New Year holiday, the strong performance lasted, can be used, trend afterwards was also stronger than in previous years. That was a benefit from our adjustments in organizational structure since mid-2021, our cost structural optimization efficiency improvement.
The enhancements and Kuaishou distinctive social attributes was also an important factor to continue to drive our user rapid growth. And by the end of first quarter of 2022, the number of our payer of mutual followers increased by 68.9% year-over-year to 18.8 billion payers. The average number of follower per MAU also rose to nearly 300.
At the same time, the time spent on Kuaishou app private domain also increased year-over-year. As the user base grows, we maintain unique social attributes through our unique content discovery mechanism, traffic distribution methods and then follow up.
Social mindset is also influenced in connecting more Kuaishou users. From user behaviors, we found a clear positive correlation between social-based mutual follow relationships and long-term user retention rates. The formation of multilateral user network, further enhanced our user stickiness and improved our user retention rates.
Apart from social attributes, the creation operations of feature content verticals have also enabled us to keep attracting attention of more new and existing users in the first quarter of 2022. We continue to make breakthroughs in feature content verticals at a short plays, sport and pan-knowledge.
For short plays, we innovate the themes and upgraded quality and continue to expand the influence of a larger group of users, attracting more female users to the high-tier cities. In the first quarter of 2020, our flagship project, Astral, which focuses on creating high-quality leading short plays, launched 18 blockbusters with a cumulative view of over 100 million, included the phenomenon Her Highness, Princess Royal and also Revenge from
Phoenix, which became international sensations. And to date, we have released close to 12,000 short plays, of which 350 are top quality and industry leading, putting us on a top of producer list for blockbuster short plays.
Taking advantage of Spring Festival traffic, Kuaishou pioneered and launched 56 scheduled short play series under project Astral with more than 15 billion exposures on the Internet, building user mindset of consumptions.
We trusted our investment in sports content and the results we achieved have been well noted. As of March of 2022, Kuaishou covered more than 40 sports categories, home to close to 100,000 content creators. In addition to copyright corporation of the summer and winter Olympics, we have also reached copyright and content cooperation agreements with NBA, UEFA Champions League, American National Football League, NFL, super bowl, Major League Plays, MLP and Ultimate Fighting Championship, UFC and other mega sport event.
We have gradually built a diversified sports content coverage field as the football, basketball, boxing, billiards, the car race and extreme outdoor sports and continue to attract hundreds of domestic and overseas sports cars, and liabilities to our platform, forming a global sports content ecosystem.
Technology capabilities are also one of the main growth drivers, we kept iterating our deep learning model, optimization recommendation strategies and adopting AI technology to provide users with a better experience, and that has also helped to boost the user growth and improve long-term user retention rates.
At the same time, AI technology also helps us to further improve the efficiency of traffic utilization achieved simultaneous optimization of user growth and monetization efficiency. In the first quarter of 2022, our total revenue increased by 23.8% year-over-year to RMB21.1 billion. We delivered better growth results across the board in our business than the industry and continue to gain market share.
Amongst, revenues from online marketing services was RMB11.4 billion, increased by 32.6% year-over-year, affected by the resurge and dynamic. The macro economy is under pressure this year, the whole advertising industry was affected severely.
Kuaishou’s performance correlates closely with the macroeconomic hence is also under pressure. But relatively speaking, with our advantage in traffic, ecosystem, products, technology and services, we’re still able to maintain the pace in growing our market share.
In the first quarter of 2022, our total cap increased more than 50% year-over-year, which laid a solid foundation for a rapid growth in online marketing services. In the current macro environment, advertisers care more about their effort and effect of their ads and quite those video-based advertisements, which with rich content and also strong interaction and expressiveness continue to gain popularity among advertisers.
At the same time, our comprehensive ad product matrix and closed-loop business ecosystem has also in content integration between brand advertising performance ads and also the strength in the conversion from recommendation to transaction. Therefore, demand from types has shown relatively strong relevance.
Moreover, we are able to apply our power play technology more precisely and with greater depth in online marketing services and our business growth. We extracted and refined more valuable labels and indicators which are directly related to ad performance and serve as key reference to our recommendation model so that we are able to improve business efficiency and effectiveness.
Affected by macro economy and pandemic, our advertisers’ monthly ARPU decreased year-over-year in the first quarter. But by continuously optimizing our ad system and advertiser experience, we gain popularity and recognition from the increasing number of advertisers in the first quarter of 2022. The number of our advertisers increased by more than 60% year-over-year.
At the same time, our advertiser retention rate was also optimized, which demonstrated our ability to provide advertisers with satisfactory rates of return. Our flow-through of advertisements to maintain healthy growth in the first quarter of 2022, making it an important contributor to the growth of our revenue from online marketing services, this was mainly resulted from the rapid development of our e-commerce business by the synergy and organizational collaboration and continued duration of flow through advertising products.
On the organizational side, our online marketing service team and e-commerce team have been cooperating more closely that has brought about better alignment in business growth designed to provide better services and improve conversion rate for our e-commerce merchant in terms of products, apart from typical ads. Through e-commerce live streaming, we are actively exploring short video-based e-commerce ad, which provides a chain of recommendation to a transaction as we have a larger inventory of short plays.
And we have been constantly improving our experience and product effective along the transaction chain. Since mid-March, the resurgence of pandemic has dampened the activeness of merchant premium advertisement willingness.
To reduce the impact from pandemic and to support the merchants, Magnetic Taurus launched a pandemic refund policy to performance-based advertisers agreeing to refund to 20% advertisement fee, if user canceled the order due to logistic problem in impacted areas.
As for brand advertisers and also as for brand advertising, leveraging our successful event operations such as Winter Olympic and Spring Festival in the first quarter, we attracted dozens of world-renowned brands. Kuaishou has gradually established a more distinctive and differentiated position in minds of the brand advertisers.
Turning to e-commerce in the first quarter of 2020, our e-comm’s GMV amounted to RMB 175.1 billion, growing rapidly by 47.7% year-over-year, of which more than 99% was from our native e-commerce system.
We continue to work on trusted based e-commerce, branded e-commerce and service partner systems. As we do, we are changing more users’ consumption mindset by providing our unique strong trusted user experiences, high-quality and rich products and e-commerce content and user info for leading recommendation technology.
In the first quarter of 2020, our e-commerce penetration rate and sales conversion rate continue to rise year-over-year. More users became active buyers of Kuaishou e-commerce and their willingness to expand capitalizing as of March of 2022.
The number of annual active buyers of our e-commerce business exceeded 210 million. We launched trustworthy shopping, a comprehensive service, rights and interest production system in this year. The trust index generated accordingly covers dozens of dynamic evaluation indicators such as product quality, service quality, streamer’s attitude, product experience and after-sale guarantee.
Under the merchant recommendation system, immersion with higher trust index will enjoy great exposure and operating rights and interests. It guides the merchants to improving their operations and enhancing their service quality, plus what the shopping experiences continue and contribute to better user stickiness and our monthly repeat purchase rate in the first quarter further increased compared with the same period last year.
Turning to the brands. Well known brands led to the growth of brands on our platform in the first quarter. We have also come up with a Kwai Brand strategy. Kwai Brand as emerging merchants, are born and have grown in Kuaishou’s e-commerce ecosystem. They have their own brand capabilities and uphold the business philosophy of honest people, quality goods and reasonable prices in providing users with better experience for money, products and services.
These type of merchants tend to have a better understanding of content and live streaming e-commerce. In the first quarter of 2022, the average monthly GMV per Kwai Brand merchant amounted to more than RMB 25 million, and the unit price was about twice the company’s average.
The users monthly repeat purchase rate exceeded our e-commerce average, reaching more than 80%. This year, we plan to support 500 Kwai Brands. Kwai Brands have huge room to grow, and we will further help Kwai Brands drive and develop.
Over the past year, we have built a stronger service partner system in the first quarter of this year. In addition to the increasing number of service owners, we have also paid more attention to their quality improvement, empowered by service providers. Thousands of merchants increased their sales by leaps and bounds during the first quarter.
We also set up an incubation and operations center, providing precise support to mid-tier to long-tail merchants to helping them to grow quickly. In the first quarter of 2020, the number of our monthly active sellers climbed quickly year-over-year.
Since mid-March, COVID-19 has spread and related control measures have been tightened, hitting the logistics, warehousing and manufacturing operations of e-commerce industry. This use — the user ordering and merchandise shipping in affected areas have also been hampered. These in return have all directly affected merchants delight to livestream and users order frequency.
To reduce the impact of pandemic on Kuaishou merchants, we launched On Stream Program in 2022 to provide multiple support policies, including allocating exclusive e-commerce traffic, adding virtual goods and local services, offering incentives to pandemic pattern streamers, adjust the merchant fulfill policies and transforming logistics data of pandemic-affected area online, et cetera. We are standing firm with users and merchants to overcome difficulties.
The live streaming business also continued to improve in the first quarter of 2022 with revenue reaching RMB7.84 billion, 8.2% increase year-over-year. Our live streaming model with lower entry barriers and high inclusive resource showed a relatively strong resilience and grow momentum.
The first quarter is the peak season for users and traffic growth, laying a solid foundation for live streaming business to grow. At same time as a starting point of explorers, the industrialization of live stream e-commerce and the ecosystem, live streaming scenarios and contents such as client recruitment have also brought more new users and traffic to the business in the first quarter of 2022.
The MAU penetration rate of our live streaming business increased from 74% in the same period last year to more than 80%. Live streaming is the main source of content supply of Kuaishou through interactive and intensive cooperation with professional talent agencies, we have cap optimizing the quality of content, identifying high-quality live streaming content through technologies and match more attractive resources with streamers to bolster streamers live streaming willingness, thereby forming a various content supply and demand cycles.
In first quarter of 2022, the average daily live streaming time offers streamers increased by double-digit percentage points year-over-year and ecosystem of live streaming consumer remained active and healthy.
The high-quality content supply resulted in a rebounding live streaming consumption. In the first quarter of 2022, the average monthly paying users of live streaming business was up 7.8% year-over-year. Although live streaming is a long-running business, it has continued to innovate, iterate, and deliver value.
The live streaming recruitment service, Kwai Recruitment has been widely popular among users since its debut. We encourage different types of streamers to include their service in live streaming, users the influence to help match enterprises and employment they need for the users.
In the first quarter of 2022, the number of MAUs of Kwai Recruitment also exceeded RMB100 million and the highest number of CVs received in a single day during Spring Festival was 150,000. Benefited by a strong trust relationship of users and high frequent real interactions, the drop conversion rate and user retention rate of Kwai Recruitment leads the industry.
As the graduation season comes, we recently jointly launched the 2022 college student cloud recruitment effect, featuring a total of more than 38,000 jobs from the participating companies.
We hope to gradually improve the video base recruitment experience, create more and better employment opportunities and higher conversion rates for blue-collar workers and college students and return help the real economy to develop.
Entering 2022, our overseas business has achieved effective growth on the basis of controlled costs through differentiated product positioning division of user groups, content supply, ecosystem governance, and algorithm technology. Our overseas business had to establish a unique product position in the first quarter of 2022, coincides such as service DAUs, average daily time spent per DAU and user long time and long-term retention continued to improve.
In Brazil, for example, we built a high and highly speaking user group and an ecosystem featuring a positive cycle of healthy content creation and consumption results in average daily time spent per DAU to 60 minutes in the first quarter of 2022.
In the future for a different overseas market, we will continue to strengthen local operation capabilities, building commercial infrastructure and keep exploring monetization models.
That’s my presentation. Next, Jin Bing will share with you the company’s financials.
Thank you, Yixiao. Hello, everyone. Now I am going to give a close look at the financial performance for the first quarter of 2020. We began 2022 with a quarter of satisfactory financial performance, demonstrating our relative resilience against the challenging operating environment. Our initiatives in cost control and financial efficiency and combined with a focus on both quality and quantity of growth, deliver solid revenue performance and continued narrowing of losses.
Our revenues for the first quarter increased by 28.8% year-over-year to RMB21.1 billion. The increase was primarily driven by our growth in online marketing services and other services. Within other services growth was driven by our e-commerce business, in particular. Online marketing services gained further market share as our differentiated value positioning attracted more advertisers to our platform. This allows us to further monetize our continued use of traffic growth, driving our online marketing service revenue to RMB11.4 billion, an increase of 32.6% year-over-year, taking revenue to 53.9% in the quarter.
The more modest year-over-year growth in online marketing services compared with the previous quarters was due to the impact of both the new way of COVID-19 and macroeconomic factors.
Other services revenue increased by 54.6% year-over-year to RMB1.9 billion, mainly due to the strong growth in e-commerce revenues in the quarter. Our unique Trust-based e-commerce ecosystem combined with improving brand e-commerce and growing service partner system, resulted in e-commerce business GMV increasing by 47.7% year-over-year to RMB175.1 billion.
Revenue from live streaming increased by 8.2% year-over-year to RMB7.8 billion in the quarter. This was mainly the result of average MAUs per live streaming growth, 7.8% year-over-year, supported by ongoing improvements in content quality and operating efficiency. Our cost of revenues for the first quarter of 2022, increased by 22.5% year-over-year to RMB12.3 billion, representing 58.3% of total revenues.
The year-over-year increase was mainly due to two factors; first, an increase in revenue-sharing costs and related taxes, which were in line with our revenue growth. And second of all, an increase in content costs as part of other cost of revenues resulting from our continued efforts to diversify content verticals and enrich our content ecosystem.
We were able to partially offset the impact of these factors in the quarter through optimization and efficiency of our bandwidth users, reducing our bandwidth expenses and server custody costs.
Gross profit for the first quarter of 2022 reached RMB8.8 billion, growing 25.7% year-over-year. Gross profit margin in the first quarter of 2020 was 41.7%, improving from 41.5% and 41.1% in the fourth quarter and first quarter of 2021, respectively.
Our year-over-year increase was a result of; first, further optimization of bandwidth and survey efficiency, which drove a decrease in the ratio of bandwidth to revenue; and second, our optimization of personnel-related costs; third, improvement in our revenue structure.
Selling and marketing expenses were RMB9.5 billion for the first quarter of 2022, decreasing by 18.6% year-over-year and 7.2% quarter-over-quarter, representing 45% of revenues, down 23.5 percentage points from 68.5% in the first quarter of 2022 — 2021. The decrease was the result of disciplined and more efficient spending on user acquisition and maintenance, highlighting our commitment to efficient high-quality growth.
Administrative expenses and research and development expenses for the first quarter of 2022 were RMB871.4 million and RMB3.5 billion, respectively, decreasing by 5.3% and 12.3% quarter-over-quarter due to a decrease in employee benefit expenses as we streamline our business operations.
Our operating loss for the first quarter of 2022 decreased to RMB5.6 billion, improving significantly from RMB7.3 billion in the first quarter of 2021 and RMB5.8 billion in the fourth quarter of 2021. And this resulted in a 16 percentage point improvement in year-over-year operating margin from negative 42.8% in the first quarter of 2021 to negative 26.8% in the current reporting quarter.
Our loss for the period was RMB6.3 billion for the first quarter of 2022. Our adjusted net loss for the first quarter was RMB3.7 billion compared with RMB5.7 billion in the first quarter of 2021, resulting in adjusted net loss margin improvement of 15.57 points year-over-year.
We continue to maintain a strong balance sheet position with cash and cash equivalents, time deposits, restricted cash, and wealth management products of RMB44.5 billion as of March 31st, 2022.
Our methods and growing traffic and multiple growth engines in each business stream have laid a solid foundation for our business growth, helping us to gain further online market share as we navigate a challenging and uncertain macro environment.
This, coupled with the decisions made by our management team in previous quarters to focus on cost control and operating efficiency has built a significant amount of resilience into our business. Looking forward, this resilience will pay a key role in ongoing sustainable and healthy development of our core business.
This concludes our prepared remarks. We will now open for questions. Operator, please go ahead.
Congrats on another strong quarter result and thanks management for taking my question. I saw both user growth and time spent hit a new record in the first quarter. And at the same time, sales and marketing expenses are also well under control. May I ask about the growth driver behind and the sustainability? Thank you.
Thank you for this question. So, indeed we continue to deliver satisfactory results in users and CapEx hitting new record highs in Q1 as DAUs reached 346 million and MAUs reached 598 million and several reasons behind this, but our differentiated business parts and strategic adjustments to user growth and retention; second, the strong carrying capacity of short video as a high-dimensional media; and third of all, our remarkable improvement to our organizational efficiency.
[Foreign Language] So first, we concentrated on our growth strength and pursue a more differentiated growth part. Our social attributes, for example, are one of our most distinct features and advantages, thanks to our continued focus on balanced content discovery mechanism and healthy community operation and management. So user behavior suggested a clear positive correlation between social based mutual follow relationships and long-term use of retention rates. People fulfill the needs for sales and presentation and sense of belonging to online social interactions.
Kuaishou provides its users with differentiated value, when we looked into the new growth patterns of users acquired through social interactions and found that these users have a higher retention rate, both in short and long-term. So through the social based user acquisition mechanism, new users will already have established connections with acquaintances when they walk into Kuaishou for the first time. In addition, based on relationship network, we can quickly and accurately recommend quality content that is popular among friends to new users.
So this process not only increases social stickiness, but also leads to a higher retention and deeper consumption levels. This type of social mindset guided by our community environment, traffic distribution and content recommendation mechanisms and also product settings further generate a higher social stickiness and differentiated product mindset.
[Foreign Language] Our differentiation also can be seen through our content and content operation. So total time spend on short videos, entertainment and e-commerce live streaming are all consistently increasing a reflection of the rich new content that we continue to provide to meet users need and drive continuous consumption. We also systematically operate the content verticals that better fit Kuaishou’s characteristics such as short play, sports and knowledge. In addition to content consumption, power content within the social environment resonated more deeply with users and inspires more interest. More importantly, our decentralized traffic distribution mechanisms allow a more quality content to be discovered and promote content creation, attracting more creators joining Kuaishou. In the first quarter, 25% of our MAUs has created content and content from mid to long-tail creators accounted for over 80% of the total video views.
[Foreign Language] Secondly, the short videos and live streaming industry we are in are at a higher dimensional position in the Internet industry with strong penetration capabilities and have an unrivaled advantage in display and business efficiency. So businesses such as recruitment, local services, real estate, et cetera, all continuing to bring more users and increase daily time spend on Kuaishou. The increased social connections and use case knowledge also resulted in more touch points between users and Kuaishou aiding to higher user stickiness. And naturally, users are drawn to products that solve their problems, are easy to use and provide premium experiences.
So finally, our continuous efforts to improve organizational efficiency are yielding ongoing results. First, we continue to explore and invest in new growth models and channels, breaking through the limits of traditional business models and channel efficiency to find more efficient and adaptive [indiscernible] technical.
We refined and upgraded our management of user system through more frequent and dynamic management of user and tags and classifications, we can easily match the diversity, cutting unnecessary expenses efficiently. As a result, our user and retention efficiency has better performance and our DAU retention rate of users at different stage kept increasing and among the highest in the industry.
And third, our organization restructuring has removed data barriers. We further optimized our technical capabilities and recommendation strategies and have made great progress in advanced intelligent channel bidding, promotional content production, refined users, subside, et cetera — or subsidies, et cetera. So, achieving the industrial-leading capability.
In addition, we increased our operating efficiency to drive user growth and retention for big events like the Spring Festival and Winter Olympics, we maximize our investment returns. And our user base continued to expand in the first quarter, while acquisition and retention cost per DAU has both been optimized.
And lastly, we’re actively improving our monetization efficiency per user. In the first quarter, our new user ROI continues to improve, which is very inspiring. We are confident to continue to achieve 400 million DAUs in the mid to long-term on the basis of gradually controlling the expense ratio.
My question is related to our e-commerce business. Despite the first quarter not being a high season and the spread of Omicron in March, but our GMV growth still grew very strongly by 48% in Q1. Could management explain the recent trends of e-commerce in second quarter?
And my second question also related to e-commerce is regarding our brand strategy, especially our Kwai Brands. Can management explain how big the TAM could be in future? Thank you very much.
Thank you for the questions. Since mid-March, COVID-19 resurged in various parts in China. So, it is estimated that the pandemic affected more than 80% of the provinces or tons of regions and also municipalities. Our e-commerce business has been adversely impacted and year-on-year growth rate has slowed. So however, our business shows more resilience comparing with the industry average, and our GMV still increased by nearly 50% year-over-year in the first quarter.
The current bottlenecks of e-commerce are mainly on logistics and warehousing, whereas the purchase intentional Kuaishou users remains relatively stable. The area most affected by pandemic are also the main footholds for e-commerce industry and also Kuaishou.
For example, Jiangsu, Zhejiang and Shanghai are places gathering many apparel, footwear and accessory manufacturers and production loans. And Northeast and North China are also key phases of Kuaishou users. So it is estimated that more than half of Kuaishou’s merchants are in pandemic controlled areas.
Affected by the control measures, users cannot order on-demand and receive delivery on time. Purchase frequency decreased year-over-year. Merchant live streaming activity was also impacted in these areas. So difficulty in logistics fulfillment of active consumer shopping experiences resulting in higher return rate. All of these factors slowed our economy and e-commerce growth. So we provided a variety of assistance and incentive plans for merchants, streamers and user affected by the pandemic to mitigate the impact and work together to overcome the challenges.
So as the pandemic control in some areas began to take effect, operations and production have steadily resumed. So we noted that our e-commerce business has gradually recovered in second half of April. We are also actively preparing Kuaishou June 16 value-for-money shopping festival. We will keep monitor the pandemic trend, related policies as well as the recovery of logistics and systems.
[Foreign Language] So I would like to emphasize that despite the short-term uncertainties, we remain confident to acquire market share in mid to long-term. First of all, the effective and the biggest product display as well as the efficient and real-time interactions significantly improve efficiency of product presentation and sales. E-commerce live streaming delivers high returns for merchants, especially those with nonstandard products, whereas, boosting consumers’ experience value ratio.
So combined with our unique and robust private domain and strong trust based e-commerce model consistently pushed the trustworthy shopping experience to a new limit. Our industry leading monthly repeat purchase rate provides merchants with user base for long-term operations.
Thirdly, we boost a high-value, large-scale user base. As of March 2022, the number of annual active buyers of our e-commerce business exceeded 210 million. And finally, we have strong content operations and technology based merchant capabilities.
[Foreign Language] So as to your second question on brand strategy, let me first of all, discuss Kwai brand, they are emerging, independent brands grown from Kuaishou e-commerce ecosystem and are deeply rooted in Kuaishou. So Kwai brand has three core characteristics advantages. First of all, live streaming room and the merchandise are both carrying a brand. That is to say not only the goods are branded, but the live streaming room itself has also become a brand attracting users.
Second of all, though the environment that places same importance on live streaming rooms and good — we maximize service quality, providing users with better experience value ratio. Kwai brand has the ability to produce high quality e-commerce content, have premium supply chain resources and can make full use of our trust based e-commerce so to better meet user’s needs.
Third-party data shows the percentage of consumers who pay attention to quality and price that is what we call high experience value ratio reached nearly 70% in January 2022. So in terms of consumption trends, consumption upgrades also means pursuit of personality or personalization, experience and quality. So the rise of new consumer forces will continue to help the development of Kwai brand.
Furthermore, when a merchant provides higher experience value ratio, they gain stronger trust from Kuaishou users in return, which forms a strong private domain and results in a high pre-purchase and a merchant also benefit from it. The monthly repeat purchase rate of Kwai brand users exceeded the average, reaching more than 80%. This year, we will support over 500 Kwai brands. In the longer run, we expect Kwai brand merchants will become the main GMV contributors.
So of course, established and well-known brands have also grown rapidly in Kuaishou. In the first quarter, the growth rate of well-known brands, self-operated live streaming GMV are exceeded that of total GMV. Well-known brand buyers increased by 150% year-over-year, and we hope to help these traditional brands develop a new customer and also consumer groups and at the same time, helping them accumulate private domain traffic and provide a better business environment so that these brands can achieve further growth through long-term and efficient operations.
Thanks management for taking my questions. My question is about the advertising outlook. Given our strong momentum in Q1 and continue to gain market share, how should we think about the impact of COVID and macro to our advertising momentum? And how should we think about 2022 full year advertising pool? Thank you.
Thank you for this question. So, the current macro economy and pandemic have brought many challenges to the entire industry, especially, the ad industry. And our ad business is also facing the same obstacles.
Since the second half of last year, the growth of the ad industry started to slow down due to the macroeconomic factors and some industrial policies. So, we achieved a relatively high growth rate and continue to gain market share though.
In mid-March, there was a new twist that the pandemic and control measures has searched — or researched hitting many industries and bringing more uncertainties to the recovery of macro economy.
So, advertisers across sectors have adjusted their budgets to be more conservative and the year-over-year growth rate of our ad revenue has moderated since mid-March without a notable recovery till now. However, Kuaishou is very close to users and consumption. Once the macro situation improves, our advertising business will also respond in a timely fashion.
As to the impact, let me provide more details. The first is the closed-loop e-commerce app, which is easy to understand because logics, warehousing, and productions were affected by the pandemic restrictions and merchants live streaming, sales and product delivery were also impacted.
Our closed-loop e-commerce app is highly correlated with e-commerce sales. Facing a situation like this, most merchants will choose to suspend advertising. As such, closed-loop app is placing a growth slowdown similar to that of GMV and has shown some signs of recovery reasonably, but we still keep monitoring the trend of COVID.
In comparison, the pressure on external performance ads has been greater because the external advertisers have been more directly affected by the macro environment relating to a wider range of industries, including those with offline operations. So, the pricing of external ads has been mainly downward trend.
In this environment, advertisers have higher requirements for sales conversions. Compared with other companies, our traffic is still growing steadily and video advertising has a natural advantage of continuing to enjoy a budget buyers from more advertisers.
So, at the same time, our ad load continued to increase year-over-year and there is further room for commercialization. Through direct sales and agencies, we are also continuing to expand our coverage of advertisers. In the first quarter, the number of advertisers increased by more than 60% year-over-year and advertiser retention rate was further optimized.
We will continue to help advertisers improve their ROI and winning their trust through organizational efficiency improvement, ad system, product, and technology iterations, service capability improvement, and also quality enhancement of ad materials.
So brand ad is also sensitive to the macro environment and economy, since advertisers are more concerned about performance at this period. So what we need to do now is to highlight the advantages of Kuaishou that combined brand and performance ad and attract more brand advertisers through events that deliver more certain results like the Winter Olympics.
So while our brand ad has been affected in short term, it is still in the early growth stage and will be less impacted by the pandemic and the macro environment related, or relative to the mature companies.
So we continue to monitor the pace of macro environment recovery with patience and long-term confidence. No matter how the market fluctuates, we firmly believe that we can increase Kuaishou’s online advertising market share in the long run.
[Foreign Language] And I would translate myself. My question is regarding to live streaming business. We have achieved stable growth against headwinds this quarter. However, we still updated regulations and live streaming industry, so could management share a potential impact on Kuaishou streaming business? And how do we think about the growth target in 2022 under the new rules? Thank you.
[Foreign Language] Thank you for this question. And please allow me to share some color on this one. So the value of different businesses to our ecosystem is also different. So for Kuaishou, live streaming has strong content attributes. And it is also a vital setting for users to communicate and establish trust.
Various demands and transactions are generated from increasing user engagement and user time spend while also expanding our monetization avenue. So unlike the other live streaming companies, we are more focused on establishing an inclusive low threshold and high participation live streaming ecosystem rather than stressing high tipping or stimulating spending.
Meanwhile, monetization methods for businesses that employ live streaming as a medium are diverse and constantly evolving. In addition to the traditional virtual gift, businesses such as live stream, e-commerce, and recruitment are all grafted on the live stream. So we are also paying more attention to the exploration of industrialization of the live streaming ecosystem.
[Foreign Language] Our live streaming business, with revenue primarily from virtual gifts, has rebounded since the second half of last year. Thanks to our high-quality content offering and increased live streaming operation efficiency, constant improvement of recommendation algorithm and continuous user and traffic growth.
So to be more specific, NPUs has been the key driver, with ARPU staying relatively stable. Recent regulatory requirements on the standardization of functions such as gift ranking for peak time PK are mainly targeted at reducing promotions that lead to extensive rewards, which is in line with the business philosophy that we have, always had, for example, adhering to the principle of inclusive and guiding business to refrain from high gifting.
So therefore, the impact on this should be relatively smaller. We believe that the standard established by relevant departments have fully taken into account the industry’s long-term sustainability and development and in response to the sanitization requirements, we have made a concrete adjustment plan. We expect a mid single-digit impact of such adjustments on live streaming revenue and long-term impact should be smaller.
As the industry develops, all aspects of management will become increasingly standardized and regulated companies like Kuaishou, which has distinct advantages in user traffic, overall monetization efficiency, revenue upside and technology empowerment can provide streamers and content creators with more sound and standardized professional support. We will have the opportunity to attract more high-quality streamers and it is beneficial and healthy for the ecosystem in the long run.
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.
Kuaishou Technology (OTCPK:KUASF) Q1 2022 Earnings Conference Call May 24, 2022 7:00 AM ET