Kuaishou Technology (1024) Earnings Call Transcript & Summary

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Kuaishou Technology First Quarter 2023 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided on the management’s prepared remarks. The English line will be in listen-only mode. And now I will turn the call over to Mr. Matthew Zhao, VP of Capital Markets and Investor Relations at Kuaishou Technology.

Thank you, operator. Good evening and good morning to everyone. Welcome to our first quarter 2023 financial results conference call. Joining us today are Mr. Cheng Yixiao, Co-Founder, Executive Director and CEO. Also, we have Mr. Jin Bing, 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 this discussion. The company does not undertake any obligation to update any forward-looking information, except as required by law. And also during today's call, we are going to also discuss the certain non-IFRS financial measures for comparison purposes only. For a definition of non-IFRS financial measures and a reconciliation of IFRS and to non-IFRS financial results, please refer to our results announcement for the first quarter ended March 31, 2023 issued earlier today. For today's call, management will use Chinese as main language. A third-party interpreter will provide simultaneous English interpretation in the prepared remarks session and conceptive interpretation during the Q&A section. Please note that English interpretation is for convenience purpose only. In the case of any discrepancy, management statements in the original language will prevail. And as otherwise stated, for all the currency mentioned, we are talking about Renminbi. Now I hand the call over to Yixiao.

Hello, everyone. Welcome to Kuaishou's first quarter 2023 earnings conference call. In the first quarter of 2023, we recorded Group level adjusted net profit for the first time since our listing, a disciplined breakthrough in our profitability. This milestone was achieved on the back of a strong first quarter performance driven by new [ records in ] user metrics, revenue growth and operating efficiency improvements. In addition to healthy growth in the DAUs and MAUs, we continued to grow a number of content creators, advertisers and merchants on our platform while promoting a more integrated commercialization and traffic ecosystem. We also made substantial progress with our store-wide ROI strategy in driving end-to-end sales funnel conversion for both our advertising e-commerce businesses. As a result of these accomplishments, combined with macroeconomic tailwinds, our revenue growth accelerated across all 3 business segments in the first quarter of 2023 and outperformed their respective industries. Our effective initiatives to enhance monetization and operating efficiency while maintaining our pace of business growth played a pivotal role in our profitability turnaround, leading to adjusted net profit at the Group level in the first quarter of 2023. Next, I'll discuss our key business developments in the first quarter. First, user growth and ecosystem construction; in the first quarter of 2023, we set a new record for the scale of our user community by capitalizing on growth opportunities from some seasonal festivals including Chinese New Year. Average DAUs and MAUs on the Kuaishou App reached 374.3 and 654.4 million, representing year-over-year increase of 8.3% and 9.4%, respectively. Average daily time spent per DAU on Kuaishou APP was 126.8 minutes, while total views on short video and live streaming content increased by over 10% year-over-year, representing a higher growth rate and a total user spend. With a focus on both the efficiency and quality of user growth, we lowered our user acquisition and retention costs in the first quarter of 2023 on both a quarter-over-quarter and year-over-year basis. This was the result of our refined management and technological tools as well as the automated placement on original high-quality short play and short video and live streaming content. Meanwhile, we further advanced our ROI on user acquisition by growing the proportion of users with [ inline ] and lifetime value. We reinforced the virtuous cycle and content supply and consumption by optimizing the content supply through our income algorithm-based learning system, targeting different user groups. We also continued to strengthen the social attributes and community vitality of our platform, key factors setting us apart from our competitors by the end of the first quarter of 2023. Pairs of mutual followers on the Kuaishou App reached a cumulative to 29.6%, representing 56.6% year-over-year. The Chinese New Year period has always been an important win over user growth and brand promotion during this year's Chinese New Year combined with the continent interaction we provide users with dual venues to celebrate New Year on Kuaishou on the interaction side. We offer a variety of interesting attractive features and social games. In terms of content, we provide a diverse range of the spring festival relation operator activities, including CCTV Spring Festival Gala, Kuaishou 1001 Nights Fans' Gala Online Festival Fairs, [ Kuaishou CCTV Spring karaoke party and more ]. Among them, Kuaishou 1001 Nights Fans' Gala and our self-produced program attracted more than 270 million viewers and received over 520 million likes in the first run. We launched a total of 55 short plays produced by Project Astral during the 2023 winter break period. Among them, Donglan Snow accumulated 100 million viewers with a record-breaking 40 hours of this launch. Our high-quality short play content and growing brand awareness in this area have also been recognized by advertisers. In the first quarter of 2023, revenue from advertising sponsorship of Project Astral short plays increased by more than 300% year-over-year. In terms of pan-knowledge content, we continued to enrich our inclusive educate program New Knowledge Open Class under our pan-knowledge IP Kuaishou New Knowledge, we have collaborated with top-notch institutions such as Tsinghua University and Peking University to offer courses covering a wide variety of fields including history, science and technology, economics and fine arts, attracting close to 10 million viewers. We have also further refined the search function at our platform, which has led to stronger user habits on searching in the first quarter of 2023. Kuaishou search's average monthly user exceeded 420 million and number of daily searches on our platform peaked at more than 650 million. Meanwhile, we’re delighted to see continuous progress in the commercialization of our search function, as evidenced by a doubling of search generated e-commerce GMV year-over-year, as well as over 50% year-over-year growth in the search advertising revenue in the first quarter of 2023. Second, online marketing services. In the first quarter, a considerable number of advertisers cautiously optimistic towards the recovery of macro-economy and consumption plans in 2023, but through efforts to further strengthen our commercialization data infrastructure, optimize our product capabilities and refine our industry-specific management strategies, advertising revenue growth gradually recovered. Our revenue from online marketing service for the first quarter of 2023 grew by 15.1% year-over-year to reach RMB 13.1 billion, accounting for 51.8% of our total revenue. The number of advertisers on platform also continued to grow rapidly year-over-year and quarter-over-quarter in the first quarter of 2023. Our advertiser advertising services provided our native e-commerce merchants maintain robust growth momentum propelled by the growth in e-commerce GMV on our platform. In the first quarter, we pioneered industry-leading operating philosophy with our strong wide ROI and completed pilot runs from certain brand advertisers during the Valentines' Day and March 8 Women's Day shopping festival. These trials proved the capabilities of our storewide ROI based bidding system and [ embedded activeness ] end-to-end sales funnel conversion from brand promotion and promote ad and ultimately to transactions. For our closed room advertising algorithm so we complete the end-to-end ROI production and productization plan, ensuring the alignment of the advertising e-commerce from traffic distribution and factory advertising into our omni domain e-commerce traffic allegation algorithm. In addition, we launched a project of growing our small and medium-sized e-commerce merchant client base, in particular, within our client acquisition and marketing community to upgrade our Magnetic Taurus, a platform for e-commerce, marketing solutions on mobile devices to get clients advertising needs, enhance penetration and optimize our merchant ecosystem. In terms of our external advertising services, as most of our external clients are online businesses, the recoveries have led relatively to offline businesses. However, an encouraging gradual recovery trend began to take during the first quarter in the industries such as information services, medical care, finance and education to explore advertisers long-term goals to empower our clients to achieve in-depth conversion of our target users, we're leveraging products and algorithms that are well-integrated within this attribute to promote this discovery, accumulation and user brand [ matching ] of high-quality user cohort and also build a post-click model. At the same time, we actively monitor the healthiness of external advertisements on our platform, ensuring the penetration on the high-value users through our optimized traffic allocation mechanism. In addition, we have established review standards and system for native advertisement materials to improve the quality of greater materials and reduce the negative impact on user experience and ecosystem. These efforts, together with our organic and commercial traffic allocation mechanism to enhance conversion efficiency and ROI for advertisers and propel the growth rates on advertising services. With respect to brand advertising, we're focused on strengthening our product capabilities. We established a rich advertising product portfolio, which included splash ads and sponsorships for our self-produced IPs, as well as KOLs' home pages and searches, further expanding our brand advertising scenarios and resources. Furthermore, we designed and customized solutions for brand advertisers in various stages across different industries. We systematically established user assets for brand advertisers and created an end-to-end conversion path includes integrating brand promotion, performance ads and transaction, leading to increased recognition of our platform value from a growing number of brand advertisers. Driven by these initiatives and benefiting from key promotional events such as the Chinese New Year and March 8, Women's Day in the first quarter, our revenue from brand advertising increased over 20% year-over-year. Third, our e-commerce business; in the first quarter of 2023, we continue to strengthen our trust-based e-commerce ecosystem and execute our omni-domain operating strategy. We further stratify or satisfied our users' needs by enriching our mechanism and improving matching accuracy between buyers and sales and harness the high-quality streamer resources and e-commerce content, which in turn drove a year-on-year increase in GMV of 28.4% to RMB 224.8 billion. On the merchandise side, we continue to reinforce our merchandising capabilities, amplifying the exposure of more high-quality products for recommendation through product evaluations and ratings based on a broader array of metrics. At the same time, we guided merchants to continue enhancing product information quality and quantity as well as elevating their service capabilities. On the merchant side, we further upgraded the cooperative mechanism between merchants and KOLs. We facilitated more accurate product matching for KOLs engaged in product distributions through a more refined and tiered operation strategy, leading to an over 50% year-over-year increase in GMV through the KOL distribution channel in this quarter. We expect our commercial revenue generated from KOL distribution to continue contributing to incremental e-commerce revenue growth going forward. Moreover, by leveraging our Stream Initiative to build a bridge between merchants and KOLs, we have created a flywheel of merchandise and traffic, driving increased both sides of on our platform. With respect to onboarding and development of merchants, we established cooperation with more brand merchants across a growing range of industries in first quarter, catering to our users' increasing needs and consumption of branded merchandise. Leveraging our deep insights into users' consumption behaviors, we carried out targeted promotions, leading to approximately 30% year-over-year increase in the average number of brands onboarded per month in the first quarter of 2023. Aided by promotional events such as Super Brand Day, the growth rate of GMV from brands, including Kwai Brands, was much higher than the overall platform accounting about 30% our total e-commerce GMV in the first quarter. We also facilitated brands' self-operated live streaming through creative content formats, such as press conferences, product launches and live streaming by bosses, to better cater to users' purchasing needs for brand merchandise. In the first quarter GMV of our brands' self-operated live streaming grew by approximately 70% year-over-year. Going forward, we aim to more brands expand their user base, while achieving GMV ramp-up and sustainable operations. Additionally, we worked with service providers to attract merchants in industry zones and improve our merchant empowerment system. In the first quarter, we launched the Gold Rush Initiative with exclusive policy and traffic support to help small and medium merchants grow. In March, the number of both monthly onboarded business merchants and monthly active business merchants increased by over 50% year-over-year. As for merchants with steady operations on Kuaishou, we leveraged promotion activities, such as Spring Festival Goods Festivals and March 8 Women's Day promotions to refine our subsidy strategies, optimize traffic allocation and enhance conversion efficiency, thus fostering GMV scale-up for small and medium sized merchants. On the user front, we continued to refine our tiered operations for e-commerce paying users. We cultivated user mindsets through recommendations and reinforced the conversions of new paying users and potential customers via smart subsidies, promotions and traffic allocation adjustments. In the first quarter of 2023, new e-commerce paying users' monthly purchase frequency increased continuously year-over-year and quarter-over-quarter, with retention rates improving every month. With respect to who are relatively less active paying users, we strengthened the identification and reactivation of users with subpar experience. As for active paying users, we launched our early warning and targeted anti-churn strategies in the first quarter to provide better services to high-value users. In the first quarter, the number of monthly active e-commerce paying users and average order price and monthly order frequency all increased year-over-year. Algorithm-wise, we mitigated the impact of e-commerce content on user time spent by modeling the relationship between e-commerce related user interactions and consumption time spent. This optimized users' e-commerce consumption experience, leading to more effective recommendations and conversion. Shelf-based e-commerce is another major realm in Kuaishou's omni-domain e-commerce business strategy. In the first quarter, we started to test the new shopping mall entry button we placed on the landing page of Kwai shop to better meet the intent-driven shopping needs of highly active paying users. We aim to validate our shopping mall business model and cultivate user mindshare through this active point laying a solid foundation for full scale launch of our shopping mall service in the future. Meanwhile, as we optimize our search function to better identify user intentions, we improved the product relevance of search results, leading to a doubling of GMV generated from searches year-over-year in the first quarter of 2023. Next, regarding our Live streaming business; in the first quarter of 2023, live streaming revenue grew by 18.8% year-over-year to RMB 9.3 billion, driven by year-over-year increases in both average MPUs and monthly ARPPU. Specifically, average MPUs increased by 6.4% year-over-year to RMB 60.1 million, while monthly ARPPU rose by double digits year-over-year. These achievements are a result of our consistent improvement of live streaming content quality and optimization of user-content matching efficiency through algorithm iterations. On the supply side, we focused on promoting the development of live streaming as a profession and continuously advanced our diverse cooperation with top talent agencies and streamers. In the first quarter, the number of active streamers from talent agencies increased by over 140% year-on-year. We also provided traffic support to high-quality mid-level streamers to optimize the constituents of our live streaming supply. At the same time, we continued to explore different live streaming categories, including knowledge-based live streaming and virtual person live streaming, to bring our users an endless flow of new types of live streaming content. Our innovative live streaming + services made steady progress in the first quarter, with average daily resume submissions on Kwai Hire growing by over 300% year-over-year and peak daily resume submissions exceeding 500,000. As at the end of the first quarter, Ideal Housing covered more than 70 cities nationwide, with cumulative gross transaction value surpassing RMB 8 billion in the first quarter. In addition, [ Kwai Dates ], a matchmaking service [indiscernible] over 100,000 voice chat in the live streaming rooms every day in the first quarter. Finally in terms of our Overseas business progress; in the first quarter of 2023, we further deepened our key country focus strategy to optimize resource allocation whilst establishing more agile collaboration to alleviate the operations efficiency in our core market regions such as Brazil and Indonesia, DAUs and user time spent continue to grow year-over-year and quarter-over-quarter. And revenue from our overseas business grew at an accelerated pace to reach RMB 338 million in the first quarter of 2023, increasing by over 6 times year-over-year driven. Meanwhile, we continued to narrow our overall operating loss in the overseas markets by 45.1% quarter-over-quarter in the first quarter of 2023 as we further enhanced operating efficiency and continued to reduce costs through an ROI-based investment approach in our overseas business. Our overseas live streaming business optimized its content supply by adding a vast array of talent agencies to our partner roster and energizing its existing talent agency partners to produce more and better live streaming content. Meanwhile, we ramped up our exploration in live streaming revenue products and rolled out new iterations of operational process, leading to steady improvements in live streaming paying ratio and ARPPU. In addition, we successfully enhanced the gross profit margin of our live streaming business through a series of measures to improve talent agencies' efficiency. On the advertising front, Overseas business achieved better-than-expected revenue growth, thanks to its efforts to strengthen local operation capabilities, expanding advertiser coverage to more industries, and optimize our product portfolio and service capabilities. In addition, e-commerce services was launched in Brazil in the first quarter and test the waters and preliminarily verified our processes. Looking ahead for rest of 2023, Kuaishou will continue to leverage technology to deliver high-quality experiences and services to our users and empower content creators, advertisers, and merchants while at the same time, unlocking monetization potential through our vast and vibrant ecosystems to ultimately create long-term value for our shareholders and stakeholders. This concludes my prepared remarks, thank you. And our CFO, Mr. Jin Bing will discuss company's financial performance for the first quarter of 2023.

Thank you, Yixiao. We started the year of 2023 with remarkable performance and delivered a positive adjusted net profit at the Group level in the first time of our listing. This milestone was a result of our persistent effort in advanced integration of user content and commercialization ecosystem, our continued commitment to refining operational efficiency. Specifically, we achieved a healthy expansion of our user base, taking our average DAUs and MAUs to a new record highs. At the same time, we continue to optimize our monetization models and enhance monetization efficiency to unlock the vast potential of our ecosystem, propelling solid revenue growth across our business segments. This coupled with our effective cost control and efficiency enhancement measures, leading to an operating profit in our domestic business for fourth consecutive quarters at 55.4% reduction operating loss and overseas business year-over-year. Next, let me walk you through our performance for the first quarter of 2023 in detail. In the first quarter of 2023, our Group's revenue increased 19.7% year-over-year to RMB 25.2 billion, accelerating from 15.8% in the fourth quarter of 2022. This increase was driven by broad-based strength in all our main businesses, including online marketing services, live streaming, and other services, particularly the e-commerce business. Revenue from our online marketing services increased 15.1% year-over-year to RNB 13.1 billion in the first quarter with strong performance in our closed-loop advertising and brand advertising services. This growth was driven by our efforts to further strengthen our data infrastructure to support commercialization, optimize our product capabilities and refine our industry-specific management strategies. In the first quarter, revenue from our live streaming business grew by 18.8% year-over-year to RMB 9.3 billion. We continue to reach content supply by deepening cooperation with the top talent agencies and expanding high-quality streamer base and constantly expand our live streaming usage scenarios and content categories to strengthen user engagement. Our average MPUs reached 16.1 million in the first quarter, while our monthly ARPU also achieved double-digit year-over-year growth. On the other services revenue searched, 51.3% year-over-year in the first quarter, reaching RMB 2.8 billion, primarily propelled by our strong e-commerce revenue growth. We continue to onboard [ and catch the ] merchants, bringing forward our merchandising capabilities and optimize our KOL operation strategy, which will help convert more of our users into active e-commerce paying users and increase their average order value and monthly order frequency fostering a virtuous cycle of merchant growth, KOL growth and e-commerce user growth. As a result, our e-commerce GMV increased 28.4% year-over-year, reaching RMB 224.8 billion and the year-over-year growth rate of e-commerce revenue outpaced the overall revenue growth of other services. For the first quarter of 2023, our cost of revenues increased 9.9% year-over-year to RMB 13.5 billion, accounting for 53.6% of total revenues. This increase was attributable to the increase in revenue sharing costs and related taxes in line with our revenue growth. Gross profit for the first quarter of 2023 rose 33.4% year-over-year to RMB 11.7 billion. Gross profit margin also increased significantly year-over-year, expanding 4.7% points from 41.7% in the first quarter of 2022 to 46.4% this quarter as a result of our improved cost management. Moving to expenses; selling and marketing expenses for the first quarter of 2023 decreased by 8.1% year-over-year to RMB 8.7 billion primarily due to our efficient and disciplined spending on user acquisition and retention. Selling and marketing expenses as a percentage of total revenues also decreased from 45% in the first quarter of 2022 to 34.6% in this quarter. Research and development expenses for the first quarter decreased by 17.1% year-over-year to RMB 2.9 billion, primarily due to the decrease in employee benefit expenses, including related share-based compensation expenses, R&D expenses represented 11.6% of our total revenues in the first quarter, also down materially from 16.7% in the first quarter of 2022. Administrative expenses increased by 5.5% year-over-year to reach RMB 900 million for the first quarter, primarily due to the increase in employee benefit expenses, including related share-based compensation expenses. As a percentage of total revenues, it decreased from 4.1% in the first quarter of 2022 to 3.6% in this quarter. In the first quarter of 2023, our Group achieved adjusted net profit for the first time, which amounted to RMB 42 million, a turnaround of adjusted net loss of RMB 45.3 million in the fourth quarter of 2022 and RMB 3.7 billion in the same period of last year. Our balance sheet maintained a very healthy trend with cash and cash equivalent, time deposits, restricted cash, and wealth management products of RMB 44.8 billion of March 31, 2023. Our enhanced monetization ability is an efficient working capital management empowered us to generate a positive operational net cash flow of RMB 1.8 billion for the first quarter of 2023. In summary, additionally, as you may have seen, we announced a share repurchase line of HKD4 billion, which demonstrates the confidence of our Board and the management of our company's long-term and sustainable growth potential. So overall, in summary, we continue to propel the high-quality development of our ecosystem and drove a maximized value for our content, advertising and e-commerce merchant partners. Looking ahead, we will remain focused on monetization efficiency gain across our business lines, which are built on the foundation of ever-improving user experience and user trust. This coupled with our ongoing focus on enhancing our cost efficiency positions as well to further improve our operating profitability while creating value for all the shareholders. This concludes prepared remarks. Now open for questions. Operator, please go ahead.

[Operator Instructions] The first question comes from the line of Kenneth Fong from Credit Suisse.

[Foreign Language] Thank you management for taking my questions and congrats on a strong quarter. Under the current competitive landscape how should we think about the upside potential for our e-commerce business? Can management share some of the key drivers behind? Also would appreciate some updates on the progress and status of the marketplace e-commerce business? Thank you.

[Foreign Language] [Interpreted] Thank you for the questions. According to the recent MBS data, nationwide online retail sales grew by 8.6% year-over-year in the first quarter of this year, and the scale of e-commerce industry continued to expand. As an up-and-comer with an advantageous position in live streaming e-commerce, we are still growing rapidly. We are fully confident that we will continue to gain market share going forward. [Foreign Language] [Interpreted] As to the specific drivers of our growth; first, on the supply side, the constant enrichment of merchandising infrastructure, short video content, brand e-commerce and different merchandise categories drives demand growth for our e-commerce business. We will improve our merchandising infrastructure to select competitively priced, high-quality merchandise for precise user targeting and conversion. We will also encourage merchants and KOLs to not only make effective recommendation through short video content, but also to promote order placement and transactions. At present, e-commerce GMV from short video recommendations accounts for a low single digit of total GMV of e-commerce with considerable future upside potential. As for brand e-commerce in the first quarter for our brand GMV grew at a significantly faster pace on a year-over-year basis than our overall e-commerce GMV. Going forward, we will improve sales conversion through more precise marketing subsidies and support policies to encourage self-operated live-streaming by merchant while leveraging our high-quality KOL resources to expand brand share of voice. At the same time, our merchandise categories have been growing. The apparel category, which we are in [ contagious ] position to maintain rapid growth with a major increase in our sports and outdoor subcategory. GMV from FMCG, home furniture and [ 3C ] continued to increase as a percentage of total GMV, with products carrying a higher average order value, such as home appliances growing at a notably faster rate. GMV from fresh produce, plant and [ pet ] products has also displayed strong growth momentum. While it still accounts for a relatively small proportion overall impact, in fact, GMV of tea and other sub-categories nearly tripled year-over-year. This is primarily due to our in-depth discovery and operation of high-quality merchants in industrial zones as well as the efficient conversion of potential paying users. We are confident in our ability to help merchants from a wider range of industries achieve a quantum leap in their online sales. [Foreign Language] [Interpreted] Secondly, on the demand side, overall user traffic, rising paying user penetration and higher purchase frequency on the main growth drivers. As a platform with high-quality content, we continue to grow our user traffic to new highs. The direction of our future efforts is to make e-commerce an integral part of our high-quality content ecosystem and raised the upside of our traffic growth through improvements in e-commerce content quality and matching accuracy. So far, the penetration rate of our monthly active e-commerce paying users has hovered around 15%, indicating considerable upside given our massive user traffic. We are further improving the path from product recommendation to transactions and aligning content consumption with e-commerce needs and enhance matching algorithm accuracy, supported by these initiatives as well as the momentum of our smart subsidy programs and the main app operation activities, we are confident that we can constantly enhance the conversion and retention efficiency of active e-commerce paying users with cost-effective goods, high-quality content and customer-focused services. Taken together these efforts will reinforce more users, e-commerce consumption habits on Kuaishou's platform leading to further increases in purchase frequency. [Foreign Language] [Interpreted] Prosperity on both the supply and the demand-side of e-commerce can only be achieved through a strong platform operation and governance. In the first quarter, we basically finished upgrading our merchants' experience scoring system and our KOLs' reputation scoring system, which are based on a comprehensive evaluation of merchandise and service quality, content, and user experience. These systems will allow us to better identify and support high-quality merchants, elevate users' overall shopping experience and together with our merchandise scores help us further strengthen our trust-based e-commerce ecosystem in the future. [Foreign Language] [Interpreted] And regarding your second question, as our merchandising infrastructure matures, we have been testing our new shopping mall service. In the first quarter, we opened testing of the shopping mall feature on buyers' homepages. We will gradually roll out access to this service in the second quarter on a larger scale and use the resulting GMV increase and growth momentum to propel supply side enrichment, refine criteria for merchandise listings and enhance its operating efficiency. The new shopping mall will also help us understand the shopping preferences of our active users and fortified users shopping mindset. With this as a home base for our e-commerce operations, we will progressively test Level 1 access points for the shopping mall. With respect to merchandise selection and shelving, we will leverage our platform's existing merchandise score and improve infrastructure such as on-shelf goods and detailed merchandise information pages. Meanwhile, we will leverage all types of suppliers' resources to constantly bring in high-quality supplies. Currently, Kuaishou's [ shelf ] GMV accounts for over 10% of our total GMV of e-commerce, of which GMV resulting from the guests [ what you like ] feature and searches, both doubled in the first quarter. The penetration rate of our search function reached a high level of 69% among monthly active e-commerce paying users, reflecting our users increasingly established shopping mentality on our platform. We expect our [ pan-shelf ] GMV to grow at an accelerated pace this year and account for a rising share of total GMV of e-commerce.

Thank you, operator. Next question, please?

Next question comes from the line of Lincoln Kong from Goldman Sachs.

[Foreign Language] My question is about the commercialization business. So can management give us any indication for the external ads, especially the performance ads when can recover to positive growth territory? And last quarter, we're also talking about the [ traffic ] efficiency, the upgrade of our commercial service as well as the store-wide ROI to re-elaborate a bit more in terms of the progress here? Thank you.

[Foreign Language] [Interpreted] Thanks for your questions. In the second quarter, we have gradually completed the execution of full year framework agreements with external advertising customers on various industries. Given this context, combined with the upcoming June 18 promotion and the implementation of our refined channel policies for some industries, we have noticed a clear month-by-month recovery trend and external performance ads expenditures compared with the same period last year. Industry-wise, the main drivers of this recovery came from gaming, information services, e-commerce and retail industries. The finance and education industries, among others, also underpin the year-over-year growth for -- of our external performance ads, thanks to our optimized sales funnel conversion, targeted efforts towards key clients and associated supportive policies. We expect advertising placements in this information services industry to increase gradually during this year's summer break period driven by ample user traffic. Advertising expenditures from gaming clients will also enter a peak period during summer break, propelled by the large number of new releases by game developers and some clients' clear traffic needs in this period. These factors have boosted our confidence that our external performance ads will resume growth starting from the second half of this year. [Foreign Language] [Interpreted] Moving to our progress with respect to building our own strength in the online marketing services; first, in terms of improving advertising traffic efficiency, we continue to strengthen our commercialization data infrastructure. We also substantially elevated our advertising performance by reaching a broader audience among users in gaming, social networking, and financial industries through better coordination among our front-end business and our product and algorithm teams exploration of targeted users group's, interest and internal data sharing as well as by encouraging advertisers to send best in-depth user conversion data. Second, regarding strengthening our product capabilities in my prepared remarks, I mentioned the intelligent upgrade of our Magnetic Taurus, a platform for e-commerce and marketing solutions on mobile devices. This upgrade included the connecting ad placements with e-commerce services. As a result, we increased the penetration amongst small and medium-sized merchants as evidenced by the 72% year-over-year growth in the number of this type of merchants on Magnetic Taurus on mobile devices in March, further optimizing our closed-loop advertising ecosystem. In terms of search traffic, with the improvement of our search function and gradual establishment of user search habits on our platform, our search traffic maintained rapid growth. As a result, and aided by a higher conversion efficiency, search advertising generated 50% higher revenue year-over-year in the first quarter. The rapid growth of search revenue will continue to provide upside potential for advertising revenue. As for brand advertising products, we expanded beyond traditional splash ads to KOLs homepages and searches among other areas, driving higher growth for brand advertising versus an overall advertising services. Third, with respect to advertising services upgrade, we are on track to improve our customer service system and response mechanism to address customer service needs in a timely manner. At the industry level, we also promoted the development of product systems and formulated customized industry solutions to address common industry problems and achieve in-depth conversions. [Foreign Language] [Interpreted] And turning to storewide ROI, we already launched the associated product at the end of March. Our forecast in the first quarter was to validate our model and optimized product and this was our focus and improving our ability for incremental ad expenditures. We completed pilot advance for same brand advertisers during the Valentine’s Day and March 8 Women's Day Shopping Festival, which provided us with testing experiences as well as insights while confirming the commercial potential of brand home page followers. Many advertisers reported the lower personnel and tracking costs and significant improvements in ROI target achievement and ad performance after the adoption of store-wide ROI. We expect to commence the large-scale rollout of this product in the second quarter.

Thank you. Operator, next question, please.

[Foreign Language] The next question comes from the line of Thomas Chong from Jefferies.

[Foreign Language] My question is about the new initiatives. Can management comment about local services and online equipment? How is the progress so far? Thank you.