3Q23 Results Preview: Encouraging E-commerce And Ad Momentum Despite Weak Seasonality
Kuaishou’s guidance on 3Q23 revenue growth remains unchanged at high teens to twenties, in line with its previous guidance and market expectations. Despite weak seasonality in 3Q23, e-commerce GMV growth remained robust and is projected to surge by 35% yoy. 3Q23 earnings are expected to beat current consensus estimates, bolstered by a solid gross margin improvement and narrowing of overseas losses. Maintain BUY. Target price: HK$100.00.
- Addresses market concerns on potential share distribution by Tencent. Kuaishou Technology (Kuaishou) highlighted the following: a) Tencent, as one of Kuaishou’s major shareholders, has not had any discussions or communication with the company regarding the potential distribution of Kuaishou shares, and b) during Tencent’s annual general meeting (AGM) held in 2H23, the president of Tencent, Martin Lau clearly stated that there would be no distribution or liquidation of Kuaishou shares.
- 3Q23 top-line growth momentum remains intact. Total revenue is guided to grow at high teens to twenties, with online marketing/live-streaming/other services guided to increase 25%/high-single digit/30% yoy respectively. Online marketing services revenue growth is guided to exceed 25% yoy, driven by continuous robust growth of internal ad. Meanwhile, external ad continues to deliver positive yoy growth and improve sequentially from 2Q23 despite the challenging macro environment. Live-streaming revenue is projected to generate high single-digit yoy growth, mainly impacted by enhanced governance of the live-streaming ecosystem since Jun 23. Despite weak seasonality in 3Q23, Kuaishou’s e-commerce gross merchandise volume (GMV) growth momentum is expected to sustain at 35% yoy, stimulated by comprehensive e-commerce content supply. In addition, both monthly active customers (MAC) and the number of monthly e-commerce orders saw sequential positive growth, driven by improvements in key opinion leader (KOL) commission distribution and ecosystem development.
- 3Q23 margin overview. Gross profit margin is expected to sustain above 50% (vs our estimate of 48%), anchored by the ongoing optimisation of distribution costs. S&M expenses in 3Q23 continue to decline yoy, attributed to solid user growth and high ROI in user retention. Management guided that adjusted net profit would potentially beat market estimates of Rmb2.37b and exceed 2Q23’s level (Rmb2.69b). As such, we estimate adjusted net profit to come in at Rmb2.8b, translating to an adjusted net margin of 10%. Overseas revenue maintains rapid growth yoy, while operating losses continue to narrow. However, in view of vague visibility, Kuaishou remains cautious on overseas revenue in 4Q23.