Operator: Good day, ladies and gentlemen. Thank you for standing by. Welcome to Kuaishou Technology Fourth Quarter and Full Year 2024 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided for the management's prepared remarks. This English line will be in listen-only mode.

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

Matthew Zhao: Thank you, operator. Good evening. Welcome to our fourth quarter and full year 2024 financial results conference call.

Joining us today are Mr. Cheng Yixiao, Co-Founder, Chairman and CEO; Mr. Jin Bing, Chief Financial Officer. Before we start, please know that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties. Actual results and outcomes may differ from those discussed.

The company does not undertake any obligation to update any forward-looking information, except as required by law. For all important information about this call, including forward-looking statements, please refer to the company's public information or the fourth quarter full year 2024 results announcement ended December 31, 2024 issued earlier today. During today's call management, management will also discuss certain non-IFRS financial measures. These are provided for additional information and should not replace IFRS-based financial results. For a definition of non-IFRS financial measures, a reconciliation of IFRS to non-IFRS financial results, and related risk factors, please refer to our fourth quarter and full year 2024 results announcement.

For today's call, management will use Chinese as the main language. A third-party interpreter will provide a simultaneous English interpretation in the prepared remarks session and a consecutive interpreter during the Q&A session. Please note that, English interpretation is only for convenience purposes only. In the case of any discrepancy, management statements in their original language will prevail. Lastly, unless otherwise stated, all currency units mentioned are in RMB.

Now I'll turn the call over to Yixiao.

Cheng Yixiao: Hello, everyone. Welcome to Kuaishou's fourth quarter and full year 2024 earnings conference call. Over the past year, guided by our technology-driven, user-centric business philosophy, we leveraged AI technology to empower our content and business ecosystem. This created greater value for both our users and partners and drove our robust financial performance.

In Q4, our average DAUs remained above RMB400 million, and our total revenue grew by 8.7% year-over-year to RMB35.4 billion. Our adjusted net profit reached a new quarterly high in Q4 of RMB4.7 billion. For the 2024 full year, our total revenue increased by 11.8% year-over-year to RMB126.9 billion, and our adjusted net profit increased by 72.5% year-over-year to RMB17.7 billion, with an adjusted net margin of 14%. These gains reflect our steady improvement in profitability. Today it has become increasingly evident that with the ongoing advancements and breakthroughs in large models and application capabilities, AI is pushing the boundaries of video content creation, user experience and the broader business ecosystem.

As a leading short video platform and content community in China and globally, Kuaishou stands at the forefront of this critical intersection of AI technology and large video models, where we are driving transformative changes across the industry landscape. We firmly believe that AI is much more than an efficiency improvement tool; it is the core engine that will create greater value for our business ecosystem while continuing to drive the platform’s traffic growth. Importantly, our work proactively engages in and advances the broader industry’s profound transition. Next, I’d like to share some of our thoughts on our go-forward AI strategy. As the predominant content consumption for global users, short videos have been deeply embedded in the fabric of users’ daily lives and every industry.

Users have developed an increasingly strong demand for richer and more diverse top-notch content. With the advent of large video models, we can greatly lower the entry barrier to video creation, particularly the cost barrier. Users can now generate premium videos with a simple prompt or picture. This positions us to unlock the massive creative potential of non-professional creators. We believe Kling is becoming the new infrastructure for video creation in the AI era.

Right now, it’s a powerful resource for PGC and PUGC creators that helps them create high-quality videos and images efficiently. Next, Kling AI will evolve into a visual storytelling tool for amateur creators. With cinema-grade video generation capabilities, it empowers people to craft compelling visual stories and become a GenAI-based director, forming an AIGC-driven community for content consumption and interaction, while achieving large-scale applications in commercial scenarios. Moving forward, by empowering through Kling, we hope to transform and upgrade existing businesses while creating a new track for AI-driven video content production. By doing so, we’ll strengthen and elevate our position as a leading platform for short video production and consumption community.

We unveiled Kling, a large visual generation model last June. After its launch, it quickly gained significant traction with video creators and artists globally, attracting more than 1 million applicants in just one month. Encouraged by users’ positive response, the Kling team swiftly improved the model, releasing new iterations approximately every two weeks. At the end of Q4 last year, we rolled out Kling AI 1.6. This latest version features enhanced responsiveness to text descriptions, such as motion, temporal actions and camera movements.

It also significantly improved visual quality, enhancing style consistency, color accuracy, lighting dynamics and rendering detail, keeping us in the lead in terms of global technological advantages. Kling AI 1.5 Pro is currently one of the top two large video models in the world, according to the well-known AI evaluation website, artificialanalysis.ai, ranking alongside Google Veo 2, far ahead of other domestic video generation large models. In Q4 of 2024, we officially launched the standalone Kling AI App, giving global users multiple ways to access it, including through both the App and the web. With the continuous improvements in Kling AI’s functionality, its user base has grown at an accelerated pace while Kling AI’s commercialization has also gained momentum, thanks to access channels such as membership subscriptions for individual users and API interface solutions for merchants. As of February, since Kling AI’s monetization, we reached an important milestone of more than RMB100 million in cumulative revenue from Kling AI.

We expect Kling AI will achieve another leap in revenue in 2025. For the next stage, we will continue optimizing and iterating Kling AI’s technological capabilities through dedicated research and development efforts and steadfast investments in resources to ensure Kling large model maintains its industry-leading position. As Kling AI continues to advance, we firmly believe AI technology and its applications are creating value for our partners on the platform, especially for our marketing clients and e-commerce merchants. As such, we will upgrade our AI algorithms and underlying recommendation technologies by closely following and learning to apply the technological progress of DeepSeek and other global foundation models. This will continually amplify the matching efficiency between users, content and merchandise and improve conversion, leading to higher ROI for our marketing clients.

We will also gradually upgrade our Magnet Engine into a next-generation AI-powered intelligent commercial engine. Through large multimodal models, we generated more creative and user-friendly marketing material content for marketing clients, dramatically reducing their content production costs and freeing up more of their budget to focus on brand promotion and traffic conversion. Meanwhile, our AI-generated virtual digital human live-streaming solution will lower the marketing entry barrier and help clients to reach breakthroughs in sales. In Q4, both average daily spending on AIGC short video marketing materials and virtual digital human live-streaming solutions exceeded RMB30 million, with a daily peak of RMB60 million. Moreover, we have fortified our model estimation capabilities by using large models to analyze product semantics and user behavior, as well as integrating model architectures and sequence representations.

As such, we have boosted the advertising performance of our marketing materials, driving more marketing spending. AI recommendation technology also offers us an opportunity to redefine the content-based e-commerce paradigm. With our deep understanding of exceptional content and superior products, we are shifting from a model where people search for products to one where products intuitively understand and find the right people. For consumers, we have validated the sales funnel of our AI Try-on tool in KOL live streaming rooms, making personalized AI shopping easier and more interactive. For small- and medium-sized streamers and merchants, we launched the Smart Presentation tool, which makes intelligent product recommendations and generates sales pitches, among other smart features, strengthening live streamers and merchant’s e-commerce marketing capabilities.

The era of AI is happening right now. As a short-video platform and content community, we are adamant that AI is not a replacement for human creativity, innovation or creation. We see it as a tool to help more people in these endeavors. AI will allow everyday users to break industry and cultural barriers, giving them the opportunity to become globally-loved artists and entrepreneurs through equal access to creative, video-generation productivity tools. With our enduring commitment to inclusivity, we have always strived to create a community, where everyday people can showcase their talents and share their lives.

We recognize that this transition requires time and patience. Over the next three-plus years, we plan to increase our capital expenditures and R&D investments, which may impact the speed of our margin expansion. That said, I'm convinced that the seeds we plant today will reshape the entire video production and consumption industry over the next decade and firmly establish Kuaishou asan inclusive digital home in the AI era. While we set our sights on the stars and look toward the future, we remain grounded, making steady, incremental progress. With that overview of our vision, I'd like to briefly review our key business highlights and developments in the fourth quarter and full year 2024.

First, user growth and ecosystem construction. In Q4, average DAUs on the Kuaishou App reached RMB401 million and MAUs reached RMB736 million, increasing by 4.8% and 5.0% year-over-year, respectively. The average daily time spent per DAU on the Kuaishou App was 125.6 minutes, while total user time spent rose by 5.8% year-over-year. Our refined user growth strategy led to consistent improvements in new users’ engagement, interaction and retention rates. We focused on optimizing features and improved the end-to-end viewing experience for users, increasing the resolution and ensuring smooth streaming.

We have continuously enhanced the video sharing and communication experience while introducing various innovative features in private messaging, which drove the daily average private messaging penetration rate up by nearly 5 percentage points year-over-year in Q4 among users with mutual followers. We also refined our comment ranking strategy, resulting in a year-over-year increase of over 40% in user time spent on comment features in Q4. Content is the cornerstone of our dynamic community, and understanding why users open our app guides our content strategy. In terms of traffic distribution, we ensure that stand-out and high-quality content featuring distinctive Kuaishou characteristics reaches the right audience through more recommendations and higher exposure, fostering deeper engagement and stronger connections. For example, content creator Da Bing’s live streaming room emerged as a welcoming space for Kuaishou users to share their stories and interact with one another, strengthening the heartfelt bonds between users and the content creator.

In the pan-knowledge vertical, Anwan Shaanxi Opera Theater Troupe’s offline tours and online live streaming sparked widespread user engagement and discussions. The Troupe’s New Year’s Eve performance achieved over 140 million cumulative views across live streaming and short videos. This fostered a connection between regional users and creators both online and offline, and strengthened core user stickiness while promoting China’s traditional art and intangible cultural heritage. Second, online marketing services. In Q4, revenue from online marketing services grew by 13.3% year-over-year to RMB20.6 billion.

This marked the first time this segment’s quarterly revenue exceeded RMB20 billion. In addition, for 2024, its revenue grew by over 20% year-over-year. Our quarterly revenue growth was mainly driven by a year-over-year eCPM increase in the high single-digits. We captured incremental opportunities, such as commercialized short plays in the online marketing services and enhanced our marketing service recommendation models through AI. This improved our ability to predict accurate outcomes and increased the conversion efficiency of marketing materials.

Additionally, smart marketing solutions such as UAX placement solutions and omni-platform marketing solutions significantly enhanced our marketing clients’ advertising performance. In Q4, external marketing services continued to be the primary driver of our online marketing services. In particular, the content-consumption industry, which included short plays, mini-games and novels, experienced faster growth. Notably, marketing spending from commercialized short plays surged more than three-fold year-over-year in Q4. On the product front, we upgraded the UAX placement solutions, transitioning from rule-based to model-based decision-making.

As a result, UAX-based marketing spending accounted for over 55% of total external marketing spending in Q4. Closed-loop marketing services continued to support merchants in leveraging high-quality traffic on Kuaishou and boosted operating efficiency. In Q4, total e-commerce marketing spending by merchants using our omni-platform marketing solutions and smart hosting products contributed approximately 55% of total closed-loop marketing spending. By focusing on enhancing small-and medium-sized merchants’ willingness for marketing placement on our platform and improving advertising performance, we drove a year-over-year increase of over 30% in these merchants’ marketing spend. Third, our e-commerce business.

Leveraging our advantages in content-based scenarios and pan-shelf-based e-commerce, our e-commerce GMV grew by 14.4% year-over-year to RMB462.1 billion in Q4. The more abundant e-commerce offerings and enhanced synergy efficiency of our omni-platform traffic have enabled us to better meet the needs of our e-commerce users. In Q4, the number of e-commerce monthly active paying users increased by 10% year-over-year to 143 million, with an MAU penetration rate of 19.5%. We also launched targeted programs to acquire new users from Southern China and enhanced their activity, while harnessing key promotional events and refining coupon and subsidy strategies. During the Double 11 Sales Promotion, we gained over 7 million net new users, further fortifying users' loyalty for repeat purchases.

Going forward, we will continue to uphold our user-centric strategy and partner with merchants and KOLs to optimize the consumer shopping experience. On the merchant side, in Q4, merchants continued to thrive in Kuaishou's e-commerce ecosystem, with the number of average monthly active merchants, increasing by over 25% year-over-year. GMV from small- and medium-sized merchants largely grew year-over-year in Q4, mainly driven by our three core strategies policies, namely improving policies for new merchant recruitment, optimizing policies for existing merchants and leveraging diversified scenarios. To encourage new merchants to use Kuaishou, we launched the Golden Bounty Initiative and Set Sail Initiative and provided cold-start traffic through targeted scenarios. These programs helped early-stage merchants increase traffic, reduce operating costs, and align incentives to their key growth cycles and transition points.

We worked with ecosystem partners to accelerate new merchants' growth, providing small- and medium-sized merchants with refined methodologies for content-based e-commerce and establishing growth paths for merchants in omni-domain scenarios, including KOL live streaming and distribution, short video and the shopping mall. In our KOL business, we strengthened the platform's merchandise management capabilities through our Blockbusters Initiative and broadened KOL's product offerings during sales promotions. Meanwhile, we further energized our content-based scenarios through diverse activities and marketing tools, including KOL competition to motivate streamers. During the Double 11 Sales Promotion, more than 39 million users joined Group Buy for KOL followers, with over 2,500 live-streaming rooms achieving GMV exceeding RMB1 million. In terms of diversified scenarios, in Q4, short video e-commerce GMV grew by over 50% year-over-year.

As important components to our content-based scenarios, both short video e-commerce and interaction between short video and live streaming have been instrumental in helping merchants and KOLs expand their businesses. Additionally, pan-shelf-based e-commerce GMV contributed 30% of our total e-commerce GMV in Q4. Its growth consistently outperformed overall GMV growth, mainly driven by strong supply and demand. In Q4, average daily active merchants grew by over 50%, and average daily paying users in our shopping mall grew by nearly 40%, both year-over-year. As our pan-shelf-based e-commerce increasingly complements our content-based scenarios, we have enhanced merchants' omni-domain operational efficiency by strengthening the platform’s control over blockbuster products.

Next, regarding our live-streaming business. In Q4, revenue from our live-streaming business was RMB9.8 billion, with the year-over-year decline continuing to narrow compared to the previous quarter. We are adamant about building a healthy, sustainable live-streaming ecosystem for the long-term and achieving diversified growth propelled by high-quality content. By the end of Q4, the number of our partner talent agencies grew by over 30%, and the number of talent agency-managed streamers increased by over 60%, both on a year-over-year basis. On the supply side, leading categories continued to create value, such as multi-host live streaming, group live streaming and Grand Stage.

In addition, by expanding user engagement on Grand Stage in rural towns, we accelerated our ability to discover and support local small- and medium-sized streamers. In terms of gaming live-streaming, in Q4, we explored comprehensive collaborations with key games, including Game for Peace and CrossFire in areas such as streamer growth, content co-creation and event promotion, while deepening our expertise in fighting games and other niche verticals. In addition, as our live streaming+ services empower traditional industries, in Q4, the average daily number of users submitting resumes on Kwai Hire increased by over 100% year-over-year, and the number of matches grew by over 270% year-over-year. For Ideal Housing, daily lead generation surged by over 260% compared with the same period last year. Finally, in terms of our overseas business and local services progress.

Regarding our overseas business, in Q4, we are deeply rooted in Brazil, where we continue investing in local content operations and brand marketing. We achieved breakthroughs in innovative user acquisition channels, increasing DAUs by 9.3% year-over-year in Brazil. Benefiting from our optimized traffic distribution mechanism and cooperation with top-tier local IP resources, we have gradually built a rich, diversified content ecosystem with steadily growing user activity. The average daily time spent per [Technical Difficulty] year-over-year and quarter-over-quarter exceeding 75 minutes. Thanks to these improvements, our total overseas revenue maintained rapid growth of 52.9% year-over-year in Q4.

Notably, online marketing revenue increased by 83.5% year-over-year. Meanwhile, as a result of our effective control over costs and expenses, the operating loss from our overseas business narrowed by 57.2% year-over-year. In addition, we have initially validated our e-commerce business model in Brazil, achieving consistent growth in order volume with improved subsidy and operational efficiencies. These early successes have unlocked the potential for healthy, sustainable development in the Brazilian market. In terms of our local services, GMV for local services more than doubled year-over-year in Q4.

We focused on city clusters with strong user bases and consistently focused on user needs by further optimizing price comparison capabilities and scenario applications. These efforts enhanced our compelling value-for-money consumption experience, driving a 52.4% year-over-year increase in average monthly paying users in Q4. We also worked on improving content quality and optimizing the user experience, which steadily increased conversion efficiency. Monetization also improved, with revenue from local services growing by 2.6 times year-over-year in Q4 as we further optimized the infrastructure of our commercialization products. We also strengthened our partnerships with more high-quality local operation- and lead-based merchants by leveraging our differentiated traffic resources, empowering merchants to achieve incremental growth.

At the same time, in pursuing higher ROI for our healthy, sustainable growth in local services, we amplified subsidy and operational efficiencies and continued narrowing our operating loss year-over-year in Q4. Looking back over the past year, despite the numerous challenges, we achieved sustained growth alongside our ecosystem partners by relying on the strength of our robust and thriving content ecosystem, ever-improving infrastructure and expanding commercial scenarios. As this new era of AI technology unfolds, we remain committed to advancing our AI strategy and remain dedicated to our technology-driven, user-centric business philosophy, staying deeply attuned to users’ needs, continuously expanding our content offerings and fostering our AI content and business ecosystem built upon our trust-based community to create long-term value for our users, partners and shareholders. My prepared script ends here. Now I’ll hand the call over to Mr.

Jin Bing to introduce company’s financial update for the full year 2024 and Q4 last year. Jin Bing : Thank you, Yixiao, and hello, everyone. Looking back on the past year, we achieved new breakthroughs in our operating metrics and steady improvements in our financial performance despite the uncertainties in the external environment. We maintained strong momentum by leveraging our robust content and healthy and sustainable business ecosystems and consistently enhancing the synergy efficiency of our omni-platform traffic. In the second half of 2024, our average DAUs surpassed 400 million, marking a significant milestone in our user ecosystem.

As an AI-driven tech company, we proactively explored and deepened the application of large AI models in various business scenarios, further elevating our content and business ecosystems while driving greater operating efficiency. For 2024, our total revenue reached RMB126.9 billion, increasing 11.8% year-over-year. Our adjusted net profit jumped by 72.5% year-over-year to RMB17.7 billion, with an adjusted net margin of 14.0%, reflecting rapid improvement in profitability. Now, let's have a closer look at our Q4 financial performance. In Q4, our total revenue grew 8.7% year-over-year to RMB35.4 billion, mainly driven by growth in our online marketing services and e-commerce businesses.

In Q4, online marketing services revenue increased by 13.3% to RMB20.6 billion from RMB18.2 billion in Q4 last year and accounted for 58.3% of total revenue. The quarterly revenue surpassed RMB20.0 billion for the first time, contributing to our full-year online marketing services revenue growth of over 20% year-over-year. This growth was mainly driven by our continuous enhancements to algorithms and models, as well as smart placement products. We also upgraded our content and user understanding, using AI technology, further improving recommendations and conversion efficiency, which prompted more marketing spending. Revenue from other services, including e-commerce, reached RMB4.9 billion in Q4, up 14.1% from RMB4.3 billion in the same period last year.

This increase was mainly driven by the growth in e-commerce GMV, which boosted e-commerce commission income. We further advanced our omni-domain operations to expand merchants' and KOLs' businesses by leveraging our rich content ecosystem and continuously improving the synergy efficiency of our omni-platform traffic. Meanwhile, we further provided abundant product offerings and more diverse marketing activities to constantly elevate users' shopping experience, fortifying our e-commerce users' loyalty for repeat purchases. All these measures lead to increases in the number of e-commerce monthly active paying users and monthly active merchants. In Q4, our live streaming revenue was RMB9.8 billion, a decrease of 2% from RMB10.0 billion in Q4 last year, with the year-over-year decline continuing to narrow sequentially.

We continued to foster a healthy and sustainable live-streaming ecosystem. By consistently developing diverse leading categories in live streaming, deepening our expertise in niche verticals, and accelerating our ability to discover and support local small- and medium-sized streamers, we effectively increased the number of streamers and talent agencies and their engagement levels. Cost of revenues went up by 6.5% year-over-year in Q4 to RMB16.3 billion and accounted for 46% of total revenue. The increase was mainly due to increased revenue sharing costs and related taxes in line with our revenue growth, depreciation of property and equipment and right-of-use assets, and amortization of intangible assets. In Q4, gross profit grew by 10.6% year-over-year to RMB19.1 billion.

Gross profit margin was 54%, an increase of 0.9 percentage points year-over-year. Moving to expenses. Selling and marketing expenses increased by 11% year-over-year to RMB11.3 billion, accounting for 32% of total revenue. The increase was mainly due to increased spending on online marketing services and e-commerce business promotions. R&D expenses were RMB3.5 billion, rising by 4.7% year-over-year, accounting for 9.8% of total revenue, dropping from 10.1% in Q4 last year.

Administrative expenses increased by 15.2% year-over-year to RMB866 million. As a percent of total revenue, administrative expenses were flat with the same period last year. The increase in R&D and administrative expenses was mainly due to higher employee benefit expenses, including related share-based compensation expenses. Group-level net profit for Q4 rose by 10% year-over-year to RMB4 billion. Group-level adjusted net profit rose 7.8% year-over-year to RMB4.7 billion, reaching a new quarterly high, with an adjusted net margin of 13.3%.

Our balance sheet remains robust, with cash and cash equivalents, time deposits, restricted cash and wealth management products totaling RMB92.8 billion as of December 31, 2024. Through enhanced monetization capabilities and efficient working capital management, we generated positive operating net cash flow of RMB8.6 billion in Q4. Additionally, we actively implemented our shareholder return program throughout 2024. Within year 2024, we had repurchased an aggregate of approximately HK$5.46 billion in shares, or around 123 million shares, which accounted for about 2.8% of our total shares outstanding at the beginning of 2024. Next, I’ll provide a quick overview of our financial performance for 2024.

For the full year of 2024, our group’s total revenue reached RMB126.9 billion, up 11.8% year-over-year. This includes online marketing services revenue of RMB72.4 billion, which rose 20.1% year-over-year. Revenue from our live streaming business decreased by 5.1% year-over-year to RMB37.1 billion, which is better than what we expected at the start of the year. Revenue from other services, including our e-commerce business, totaled RMB17.4 billion, an increase of 23.4% year-over-year. Gross profit margin expanded by 4 percentage points year-over-year to 54.6% in 2024.

Our adjusted net profit for the full year of 2024 was RMB17.7 billion, increasing by a remarkable 72.5% year-over-year, with an adjusted net margin of 14%. Looking ahead, we will continue to adhere to our technology-driven, user-centric business philosophy. Under this approach, we prioritize user needs and actively promote the development of a thriving content and business ecosystem. At the same time, we will continue to invest decisively in reinforcing the critical role of AI technology to maintain our competitive edge in the ever-changing market. These efforts will unearth more future growth opportunities and drive the long-term sustainable development of our business and financial performance.

This concludes our prepared remarks. Operator, please now open the call for questions.

Operator: [Operator Instructions]. The first question comes from the line of Felix Liu from UBS. Please go ahead.

Felix Liu: [Foreign Language]. Thank you, management, for taking my question. My question is on your AI progress. We noticed that for the company’s large video model plane has attracted widespread attention. It was even mentioned at the press conference of the MPC and CPPCC in earlier March.

Can management please share the reason for Kling's success and your plans to maintain the model's leading edge? Thank you.

Cheng Yixiao: [Foreign Language]. Thank you for your question. First of all, I'd like to thank you all for your interest and support for Kling.ai. Kling.ai started out as an internally integrated project early last year.

It opened for testing on June 6th last year and quickly iterated more than 20 versions since its launch. On December 19th, 2024, we officially rolled out the Kling AI 1.6 model. This significantly improves semantic adherence, visual aesthetics and motion quality, while putting both standard and high-quality modes. In terms of semantic adherence, Kling AI 1.6 model has enhanced the responsiveness to text descriptions with a better motion, temporal actions and camera movements, as well as better understanding of first-frame content and can generate elements not included in it. This model also boosts better visual aesthetics with a stronger style consistency, more appealing colors, better lighting dynamics and more vivid details.

The Kling AI 1.6 model improved motion quality, sharing smooth motion that makes expression more natural. In particular in our internal evaluation the overall performance of Kling AI 1.6 model improved image-to-video capabilities by almost 200% from the Kling AI 1.5 model. This gives us confidence that Kling AI's comprehensive image-to-video performance is currently number one in the world. [Foreign Language]. The reason why Kling AI has been able to achieve and maintain its global leadership is closely tied to our sharply focused strategy for researching and developing large multimodal models.

In particular, we quickly established Kling AI’s industry advantages through organizational collaboration, investment in computing power, algorithm improvement and data accumulation. In organizational collaboration, we have always ascribed great value to our technical teams; we have a deep talent pool for developing algorithms and video understanding, with a high level of collaboration across our teams. In terms of computing power, we put more computing resources on developing large video models to achieve key breakthroughs. On the algorithm front, the high complexity of video generation model selection requires more precise technical judgment, systematic selection and a large amount of algorithm innovations. We have been at the forefront of algorithm innovation, solidifying our ability for further technological breakthroughs.

Lastly, in data accumulation, we built strong technical moat in video data processing and synthetic data technology. [Foreign Language]. As for how we maintain our leading edge with our models going forward, we will continue to use our focused strategy and provide even more support to Kling AI. We will also continue to make R&D investments in Kling AI’s large video model technology and leverage the Kling AI brand to attract top talent. By strengthening and integrating our efforts across areas in computing power, algorithms and data, we are confident we can sustain our global technological leadership in video generation models.

Thank you.

Matthew Zhao: Thank you. Next question, please, operator.

Operator: The next question comes from Lincoln Kong from Goldman Sachs. Please go ahead.

Lincoln Kong: [Foreign Language]. So, thank you management for taking my question. My question is also about AI. Management mentioned in the prepared remarks company’s longer-term AI strategy. Could management break this strategy now in terms of action plan and milestone targets over the next few years.

Thank you.

Cheng Yixiao: [Foreign Language]. Thank you for question. We kicked off our new AI strategy at the beginning of 2023 and made clear strategic goals to ensure we can maintain our leadership, amid potential AI breakthroughs. As AI technology develops and gradually matures, we believe, the market is bound to see volatility with up and down cycles.

For Kuaishou, the best option is to use AI to upgrade our existing business and rapidly form a positive cycle between R&D investments and returns. This will be key to ensuring our AI products can truly equipped to transcend market cycles. At the same time, we are focused on building a strong system, that drives ongoing innovation in our large model team, to make more innovative breakthroughs and keep our leading edge in large model technology. In the long-term, with Kling.ai, we aim to transform and upgrade our existing business, while pioneering a new frontier in AI-generated video content production. This will help us to strengthen and grow our platform's leadership position for short video production and consumption community.

[Foreign Language]. With this long-term strategy in mind, we think, there are a few key areas where we need to continue making progress. First, we will continue to refine our large language models and large multimodal models underlying technological capabilities, staying in sync with industry development and driving continuous innovations in algorithm. In large language model R&D, we shifted our focus in Q3 of last year to the KwaiYii LLM MoE model, which has smaller parameters. MoE model helped us maintain our model's overall performance and better suited to our existing business scenarios, while significantly reduced training and inference costs.

This year, since DeepSeek R1 large model open sourced, we are even more confident that we can closely track and learn from the most advanced foundation models in the market to consistently improve the performance of our foundation models. [Foreign Language]. Second, we will continuously upgrade the AI monetization model represented by Kling to drive rapid revenue growth, with the goal of making Kling AI the world’s top-grossing video generation AI application. Whether it’s a tool for professional creators to produce high-quality images and videos or a visual storytelling tool for amateur creators, we believe Kling AI’s powerful technology and product capability can significantly lower the entry barrier for content creators and driving the production, consumption and interaction of AIGC content. At the same time, we’re integrating AI across Kuaishou’s content and business ecosystem.

For instance, by improving content understanding and recommendations, we can expand our user base and increase engagement. We will also make AI capabilities more widely available to advertisers and e-commerce merchants on our platform, providing them with expert tools in various areas, including AI-generated video marketing material, digital human live streaming, AI try-ons, and smart presentation. These innovations will help our business ecosystem partners operate more efficiently and unlock new growth for us in our online marketing services and e-commerce businesses. [Foreign Language]. Ultimately, as we advance our AI models, the cost and complexity of content creation will drastically decrease, leading to a surge of AICG-generated content in volume and quality.

This could potentially lead to new business models, opening up new sustainable growth channels for our company. Thank you.

Matthew Zhao: Thank you, operator. Next question, please.

Operator: The next question comes from the line of Brian Gong from Citi.

Please go ahead.

Brian Gong: [Foreign Language]. I’ll now translate myself. Thanks management for taking my question. My question is regarding Kling AI’s commercialization.

Can management please share with us the recent progress in Kling AI’s commercialization and its commercialization target for 2025? Thank you.

Cheng Yixiao: [Foreign Language]. Thank you for your question. Since launching Kling AI, we have focused on two

key areas: maintaining our industry leadership through continuous technology and product generations and exploring monetization tools that would turn our R&D investments into revenue. Right now, Kling AI generates revenue through user subscriptions, API interface solutions for businesses and customized scenario solutions, providing exclusive functionality and services for users in both domestic and international market.

[Foreign Language]. Since we began monetizing Kling AI in Q4 last year, its monthly revenue has grown at a rapid pace sequentially. From the beginning of its commercialization till February 2025, Kling AI's cumulative revenue has exceeded RMB100 million. To our understanding, Kling AI is now China's number one view generation AI application by revenue, and revenue comes from international users growing rapidly with strong retention rate in our global paying subscriber base. This further underscores Kling AI's global leadership in AI innovation, where it's become a go to video creation tool for AI content creators and artists worldwide.

Beyond our growing user subscription, our services for business are also quickly scaling. We have partnered with thousands of domestic and overseas enterprises, including Xiaomi, BlueFocus, AWS China, PrePick, showcasing Kling AI's exceptional ability to empower video creation infrastructures across various industries. [Foreign Language]. We believe that as Kling AI continues to evolve with stronger technology and more advanced features, it will serve an even wider range of individual users and businesses across more scenarios. Working closely with creators and business clients, we will identify key demands, explore more high-value scenario applications and build a comprehensive ecosystem that connects AI tool adoption, content production and monetization.

While keeping our ROI in check, our next steps will be to scale up marketing and brand activities both at home and abroad, expanding Kling AI’s reach and influence among broader demographics. We are confident that Kling AI will have significant revenue growth in the year of 2025.

Matthew Zhao: Thank you, next question please operator.

Operator: The next question comes from Daniel Chen from JPMorgan. Please go ahead.

Daniel Chen: [Foreign Language]. So, thank you for the opportunity to ask question. My question is also related to AI. If you mention that the company is harnessing advanced AI technology to empower its content and also business ecosystem. Could you just please elaborate on the progress of this specific application and also your plans further.

Thank you.

Cheng Yixiao: [Foreign Language]. Thank you for the question. As I mentioned earlier, harnessing AI to empower our existing business and align our R&D investment and returns will ensure our AI products can transcend market cycles. Since we first launched our new AI strategy, we have made steady progress and consistently hit key milestones, one after the other, along the way.

By continuously enhancing the comprehensive performance of our foundation models, we’ve fortified AI’s role in empowering our content and business ecosystem. [Foreign Language]. In content understanding and recommendations, we use large AI models to analyze short videos, live streaming, comments and user interests. The result is more accurate user recommendations that have increased user activity and time spent on our platform. Large models’ higher-level reasoning allows for more advanced content analysis, smarter recommendations and, and better matching capabilities, effectively replacing the need for extensive manual labeling.

Instead, our models automatically learn from views like streaming comments and commercial content as well as user preferences. For search scenarios, we started internal testing in early March, integrating DeepSeek R1's large model capabilities to improve intelligent search accuracy and user experience. This has helped to drive higher user activity, while tapping into monetization opportunities in our search scenario. [Foreign Language]. In commercial applications, we expect AI models to keep improving on analyzing product semantics and user behavior.

By refining model architecture and sequence representations over time, we can improve model estimation capabilities, which will enhance ad performance, ultimately driving growth in marketing spend. For example, we expect our AI-powered tools will reduce most of our marketing clients' short video production costs by 60% to 70% or more. Additionally, as AI digital human technology matures, we are creating new opportunities for merchants with digital human life streaming rooms, helping them achieve standout content-based e-commerce. In 2025, we expect AI marketing products such as AIGC short-video marketing materials and virtual digital human life streaming solutions to continue to add incremental growth to our online marketing services revenue.

Matthew Zhao: Thank you.

Last question please, operator.

Operator: Thank you. Last question comes from the line of Guanran Wang from CITIC Securities. Please go ahead.

Guanran Wang: [Foreign Language].

Thanks management for taking my questions. So, my question is about could management share your AI investment plan and scale and also the impact on your profit? Thank you.

Jin Bing: [Foreign Language]. Thank you for your question. As Yixiao mentioned earlier, our AI strategy is crucial to the company's future development.

We've already seen the tremendous value it brings to our content and business ecosystem. With Kling AI’s monetization accelerating, we are even more confident about making a firm and long-term commitment to investments in AI. [Foreign Language]. In terms of AI-related CapEx, we plan to increase our 2025 spend in AI compared with 2024, but in a measured way. First, we already pre-purchased and stored some training computing power in 2023 and 2024, and we will continue purchasing computing power in 2025.

Our main goal is to ensure that Kling AI has the training computing power needed to keep its leading edge. Second, we’re making structural adjustments to our AI-related CapEx. As Kling AI’s commercialization grows, we’ll adjust and increase investment in inference computing. The computing power required for inference is sufficiently supplied in the market. That is why while we plan to add more inference GPUs, the overall CapEx increase will be controlled.

Finally, we will keep improving the utilization efficiency of our existing computing power and servers through engineering innovation and operational optimization, making sure we get the most value from our existing infrastructure. [Foreign Language]. For AI-related expenses, like R&D personnel costs, we expect a moderate year-over-year increase as we look to attract, retain and develop our talented AI team. Overall, we estimate that AI investments will impact our adjusted net margin by about 1% to 2% this year. Of course, we will dynamically adjust the scale of AI investments, based on business progress.

For example, if Kling AI's monetization keeps accelerating, we might increase its investment in inference computing power. That said, since the Kling AI has already reached breakeven in terms of the gross profit margin in inference-generated videos, additional spending on inference, will have a relatively small impact on our bottom-line. In the long-term, as AI continues to empower our content and business ecosystem, we expected this to meaningfully drive higher revenue efficiency and profitability for the company over time. Thank you.

Matthew Zhao: Thank you.

That's the end of the Q&A session. Back to your operator.

Operator: [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.