Kuaishou Technology Aktie

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Kuaishou Technology Second Quarter and Interim 2026 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided for management's prepared remarks. [Operator Instructions]

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

[Interpreted] Thank you, operator. Good evening, and good morning, everyone. Welcome to Kuaishou Technology Second Quarter and Interim 2020 Financial Conference Call. Joining us today are Mr. Cheng Yixiao, Co-Founder, Chairman and CEO; and Mr. Jin Bing, our CFO.

Before we start, please note that today's discussion may contain forward-looking statements, which involve a number of risks and uncertainties and -- actual results and outcomes may differ from those discussed. The company does not undertake any obligation to update any forward-looking information, except as recorded by law. For all important information about this call, including forward-looking statements, please refer to the comps public information for the second quarter and interim 2026 results announcement ended June 30, 2026 issued earlier today.

During today's call, management will also discuss certain non-IFRS financial measures. Please are reported for additional information and should not replace IFRS-based financial results. For a definition of non-IFRS financial measures and a reconciliation of IFRS to non-IFRS financial results and the related risk factors, please refer to our second quarter and interim 2026 results announcement. For today's call, management will use Chinese since the main language. A third-party interpreter will provide a simultaneous English interpretation in the prepared remarks and a Q&A and a consecutive inflation during the Q&A session.

Please note that English interpretation is for convenience purposes only. In any discrepancy management's original statements will prevail. Lastly, and unless otherwise stated, all currency units mentioned are in RMB. I will now hand the call over to Yixiao.

[Interpreted] Hello, everyone. Welcome to Kuaishou's Second Quarter 2026 Earnings Conference Call. In Q2, amid a complex macroeconomic environment and industry competition, we remain committed to our long-term vision and strategic AI investments and we achieved a high-quality growth. In Q2, the average DAUs on the Casa reached RMB 412 million. Total revenues increased by 1.4% year-over-year to RMB 35.5 billion. Revenues from our core commercial business, including online marketing services and other services, primarily e-commerce and Kling AI increased by 7.4% year-over-year. Adjusted net profit reached RMB 3.9 billion with an adjusted net margin of 11%. Overall profitability remains stable, further demonstrating the remains of our business operations.

Now I'll elaborate the progress of each segment in Q2. First, our strategy and progress of our large big generation model, Kling AI. In Q2, Kuaishou continued advancing its vision of empowering everyone to craft capitalist [indiscernible] through model breakthroughs, product feature upgrade and a global creative ecosystem expansion. Kling AI reinforced its global leadership in motor multi-mode video generation. Kling AI launched native 4K video output in Kling AI 3.0 series as the industry's first video generation model to support native output it enables 1 click generation of cinema grade 4 [indiscernible] film, TV and advertising [indiscernible] delivers high-resolution features without complex post production and achieving industrial grade cinematic military effect.

Kling AI also released the 3.0 Turbo model which maintain a stable, high-quality dynamic output and precise audiovisual zinc, while improving creative efficiency and reducing production costs. Kling MCP and Kling CLI were officially launched as well. enabling AI agents to dispatch clean AI for batch content creation and expanding its use case in workflow automation and intelligent all contrition. Kling AI continues to empower professional content creation with its technical innovation and creative achievements earning broad industry recognition. -- and the 2026 canned lines, 2 times and videos generated with Kling AI, 1 silver line and 2 bronze lines, demonstrating recognition of its creative capabilities by 1 of the world's premier creative awards program.

And the 2026 Beijing International Film Festival, multiple Kling AI -created works, including paper smartphone were selected for the AIGC section stroke of genius with usage serving as a literal supervisor when the annual feature to work in short play micro-sort play award, highlighting Kling AI's strengths in empowering professional film making and content creation driven by model breakthroughs, continuous product enhancements and deeper penetration, Kling AI commercialization maintained a strong growth momentum.

In Q2, Kling AI generated revenue of over RMB 850 million, up over 200% year-over-year, continuing to lead a global AI commercialization. In Q2, we made a solid progress advancing the research and application of our general purpose large models. We released 2 and upgraded a multi-model model that enables deep perception around 256,000 ultra-long context and delivers nearly losses reasoning for long video temporary understanding. It also became the first [indiscernible] based model with a built-in agent collaboration mechanism, demonstrating the potential for code parsing and a tool implication.

We introduced AgentX, a self-evolving agent AI agent for industrial recommendation systems that autonomously handles recommendation model and strategy design, performance evaluation and knowledge accumulation, significantly improving iteration efficiency of our recommendation algorithms. It enables recommendation systems to autonomously drive recommendation model and strategies design, evaluated performance and accumulated insights significantly boosting the iteration efficiency and the recommendation algorithms.

In Q2, we developed a scenario-based agent capabilities for generating marketing materials across our online marketing services tailored to industries and [indiscernible], we achieved over 70% year-over-year growth in AIGC shorter media marketing spend in Q2. We also extended our generative recommendation and intelligent models to live streaming, search and pan shelf-based e-commerce narratives. This improved marketing content recommendation effectiveness and unlocked more line marketing spend budgets.

In Q2, our self-developed a general purpose aid, MyFlicker has integrated skills across key internal systems began serving all employees by over 92% of the employees were using our AI agents and the code contribution rhythm on R&D engineers reached 60%. Meanwhile, ranging our enterprise create a large model platform, integrate high-performance model inference, cost-efficient model customization and fully management service, on [indiscernible] internal AI use cases and also external enterprise clients with large model infrastructure router, a global AI auto aggregation platform, several renting hosted open source models ranked among the top by API call consumption.

Second is the growth in [indiscernible] ecosystem. In Q2, average use on the Kuaishou reached RMB 412 million. The average MAUs reached RMB 797 million. We leveraged AI-powered Smart placement to improve the user acquisition efficiency and boost retention and renew and reactivity users. We consistently fund our traffic management to better serve our highly active acquire users. We also continue to emphasize our social futures, users with mutual followers engaging in private messaging grew over 15% year-over-year. We also optimized the Kuaishou APP's core features, comprehensive will be elevating the user experience through systematic improvements through product features you play back the smoothness and intelligent interaction.

We believe in the power of community and we remain committed to strengthening our differentiated high-quality content ecosystem. In June and July, we leveraged the world combos to launch our native IP, Kuaishou World Cup Fans Trophy. Beyond covering trading [indiscernible], we launched original events, including the Kuaishou XY-style FC and Dream Chasers Youth Football Tournaments. Through trend-driven operations, engaging interactions and community co-creation, we build a sports hub where a quieter user could participate.

These activities generate 68.2 billion impressions and 360 million in cumulative livestream views. We also continued innovating our copyrighted content partnerships using a joint operation model to deliver more high-value content to users. We use an e-commerce live streaming model to secure live broadcasting rights for 2026 CPA season. We also introduced a paid live streaming model for online music performance. In April, we hosted a TP concert, generating over RMB 10 million in sales, achieving a synergy between continent commercialization.

The [indiscernible] also driven grass sports events achieving a notable regional scale, especially in Northwest China. Third, online marketing services. In Q2, revenue from online marketing is reached RMB 20.6 billion, up 4.4% year-over-year. Our non-e-commerce marketing services continued expanding across content consumption, lifestyle services and AI applications, supported by our omni domain traffic synergy strategy and dedicated programs for brand merchants e-commerce marketing services remained resilient. We also continue deepening a applications across the full marketing services life cycle.

In Q2, the content consumption Star services and AI applications continue to drive the year-on-year growth in our non-e-commerce marketing services revenue. In constant consumption had lower production costs and reduced creation areas driving rebid short-play supply growth that cater to other user preferences. This enriched our content ecosystem and boosted the related marketing demand by doing short play supply on Kuaishou, both live action and AI generated had grown over [indiscernible] from January. In Q2, short-play driven marketing spend grew over 100% year-over-year. In Lifestyle services, we deepened our presence in some verticals like comprehensive and no services while exploring incremental growth opportunities.

We also optimized the deep conversion capabilities enhance the food stack leader driven marketing solutions such the user cohort, exploration AI agent. These efforts helped clients to more effectively identify high [indiscernible] users, improving lead quality and conversion. In AI applications, we worked closely with the clients to align ad placement with in-app conversion, helping them to improve user retention and conversion. This further strengthened our competitiveness in capturing added spend from AI application clients.

For e-commerce marketing services in Q2, we strengthened our omni domain traffic synergy across e-commerce and commercialization business to improve merchant traffic matching efficiency. We conducted a more granular merchant segmentation with the tiered operations, tailoring product strategies to address merchants [indiscernible] we also took a content supply side approach by managing marketing matures, including incentivizing first launch content and increasing recommendation diversity.

These initiatives optimize the e-commerce market and material continents enabling high-quality content to reach relevant and traffic more efficiently, improving our long-term commercial ecosystem. Despite a back roll and emerging challenges, we remain committed to traffic support for high-quality merchants the T2000 brand initiatives launched in Q4 last year has delivered a processing early results. Brand merchant marketing spend outperformed our broad e-commerce marketing in Q2. Its revenue contribution continues to grow and the product level, our net transaction ROI bar to continue to evolve by enhancing omni [indiscernible] bidding capabilities and refine leading mechanisms and model strategies client penetration rose from 45% in Q1 to 55% in Q2, effectively helping merchants reduce return rates.

In Q2, we continue optimizing AI applications across industry-specific scenarios, improving clients' marketing placement efficiency and strengthening our capacity to capture incremental market budgets across sectors in content consumption through content understanding user matching and smart placement, I helped quality content to reach users more efficiently. In Lifestyle Services, AI is applied to getting material generation, digital human live streaming business operations, user intent identification and deep conversation production, these help merchants lower costs across content creation, placement and customer services.

And four, our e-commerce business. In Q2, we advanced our strategy across 3 areas: growing our paying user base, expanding supply and deepening e-commerce and commercialization traffic integration we optimized our merchant ecosystem and mix, strengthen brand and new merchant antigen in their growth, growth synergies between e-commerce and commercialization. During the quarter, we focused on growing high-quality buyers while active pay users remained largely stable quarter-over-quarter as the users omni consumption habits continue developing, we strengthened our private domain advantages by aligning traffic across diverse areas. This enabled a content-driven product coagulation, shelf-based conversion, store repurchases to reinforce 1 another in a positive growth cycle.

We also enhanced cross-scenario synergies and optimize the subsidy efficiency driving best growth across content basis and [indiscernible]. On the supply side, in Q2, we continued onboarding new merchants and advancing brand expansion through cost reduction, efficiency improvement of growth incentives, product empowerment and operational support hope the new and small and medium-sized merchants grow while further improving our merchant mix.

We launched our updated Starlight initiative, offering tier supportive programs for branded merchants, larger merchants into the zone merchants and SME merchants, helping more and scale faster. Supported by these initiatives newly onboarded merchants grew year-over-year and rose nearly 10% quarter-over-quarter, new merchants achieving scaled growth in their second month rose nearly 3% year-over-year, reflecting continued improvements in new merchant quality.

On the brand side, self-operated GMV from T2000 brands maintained strong year-over-year growth, while their contribution to omni domain GMV steadily increased marketing spend on the branded commercialization also grew rapidly year-over-year for they're boosting brand merchants contribution to the both overall e-commerce GMV and online bidding revenue. By industry leveraging content-based e-commerce trends, merchants counting tea, alcohol and health products, beauty and cosmetics and fresh food continued growing unlocking structural growth opportunities.

We continue to improve our KOL ecosystem structure, enhancing content supply quality. We keep in collaboration with the top-tier KOLs, increasing support for mid-tier cars in our strong verticals like 3 rural and enemy and improved the consistency of existing KOLs performance, reinforcing our e-commerce content foundation. By engineering KOL resources with a distinctive product offerings, we deepened our penetration in industry zones and launched content and marketing initiatives like product origin tracking, live streams.

These efforts strengthen the synergy content and supply empowered KOLs and improved conversion. We also expanded our KOL base through in-platform incubation, talent agency partnerships an external acquisition to boost the string frequency, we refine our incentive policies. In Q2, the number of streamers with over 10,000 grow year-over-year, while KOL streaming frequency continued to increase steadily. On the distribution pool development, we leveraged the AI to enhance product capabilities creating a more targeted system, further boosting the vibrancy of our distribution system.

In Q2, active KOLs distribution patriation continued rising year-over-year and merchant KOL merchants metrics grew over 20% year-over-year. In Q2, throughout the full life cycle merchants, we continued optimizing our capabilities across e-commerce scenarios, helping merchants reduce, improve efficiency and driving intelligent operations. These initiatives validated AI's evolution from a productivity tool into a comprehensive business execution solution. In Q2, over 850,000 merchants use our free business tools across product selection and listing, marketing material to creation business analysis, smart placement and AI power customer service. these AI tools provided tons with end-to-end operation support and capability enhancement.

Next, our live streaming business. Q2 live streaming revenue reached RMB 8.7 billion. We focused on supply side of health and leverage AI to empower live streaming products, driving ecosystem quality and product invasion. On the supply side, we launched the Confluence initiative, providing streamer acquisition incentives, early-stage growth support ecosystem governance to steadily expand the supply of new streamers from talent agencies and improve their early traction efficiency.

We also strengthened independent streamer operations. focusing on identifying high-value independent streamers to solidify our live streaming supply foundation. We also encourage the top streamers to expand into Group 5 live formats reading their traffic and influence to enrich high-quality live streaming content supply. On the product and technology front, further empower the live streaming rooms powered by clean gives with customizable special effects continue to evolve, offering more formats and capabilities in boosting users' willingness to pay.

In Q2, AI gives us [indiscernible] users passed to 6 million. AI-driven content understanding, continued optimizing our live streaming recommendation strategy, enabling more precise matching between streamers and users, supporting paying users growth Intelligent live streaming give recommendation and ranking features based on real-time multimodal signals improve users' payment experience and exit. AI tools like AI interaction of systems and digital offer to our solution was for the refined improving streamers to serve efficiency.

Finally, our overseas business progress. In Q2, we remain committed to high-value growth strategies, strengthening our overseas foundation in profitability, long-term operation and localization. On traffic and content, we maintain refinery user acquisition, in-house local content and expanded community creator networks fostering an engaging atmosphere around real-life scenarios and deepening content consumption among core users for overseas online marketing services, we capitalize on major events such as Vista and the World Cup driven by AI as ROI analysis, User Group [indiscernible], innovative product features and industry-specific strategies.

We helped marketing clients capture the key marketing periods and achieve rapid growth. We also unlocked the monetization potential in short of plays and other content formats, together with our marketing services capabilities. This formed the de engine growth model while accelerating expansion in growth sectors, such as e-commerce or [indiscernible] GMV and order volume continued solidated year-over-year growth in Q2. At the same time, we drove growth in average water value through product mix optimization and quality support, while maintaining solid operational efficiency and profitability.

Looking ahead to the second half, amid growing external challenges will remain steadfast in advancing our core strategy, leveraging our technology and ecosystem strength to navigate headwinds. While we face short-term revenue pressure and have AI investment, we will maintain our long-term focus and continue expanding the commercial exploration of AI to empower quits content and commercial ecosystems. As we pursue near-term breakthroughs and high-quality growth over the long term, we remain committed to creating long-term value for our users and platform partners. That concludes my prepared remarks.

Next, I will hand it over to Jin Bing, who will read the company's financial update for the second quarter.

[Interpreted] Thank you, Huaxia, and hello, everyone. In Q2, we continue to deeply create technologies across our business scenarios. As a result, we achieved a high court growth through our overall business amid a complex environment. The comprehensive application of AI has become an engine driving the company's long-term development and continue to empower our content ecosystem, enhanced user experience, our providing merchants and advertisers with end-to-end emerging business operation tools for our platform partners, these capabilities help to reduce costs and improve efficiency. It also injected a new growth momentum into our business.

In Q2, the group's total revenues reached RMB 35.5 billion. Adjusted net profit reached RMB 3.9 billion in the second quarter with an adjusted net margin of 11%, the group's overall profitability remained at a healthy level. Now let's take a closer look. Our total revenue grew 1.4% year-over-year to RMB 35.5 billion in Q2. The increase was mainly driven by growth of our online marketing services and the Kling AI business. Online marketing services revenue increased to 4.4% to RMB 20.6 billion in Q2 from RMB 19.8 billion in the same period last year. This growth was primarily attributable to deepening application of AI in online marketing business which effectively enhanced our client marketing placement efficiency driving more marketing spend.

Revenue from other services, including e-commerce and Kling AI business reached RMB 6.2 billion in Q2, up 18.5% from RMB 5.2 billion in the same period last year. The increase was mainly driven by continued expansion of our Kling AI business as the Kling AI achieved a breakthrough in model cables, continuous product enhancements and deeper penetration across professional creative snares, its commercialization can continue to strong maintain strong growth momentum.

In Q2, our live streaming revenue was RMB 8.7 billion. We consistently cotivated high-quality content, leverage AI-powered product innovations enhanced the quality of our [indiscernible] is developed a rich and healthy lapse from ecosystem, diverse high quality content. Cost of revenue increased to 10.7% year-over-year to RMB 17.2 billion in Q2, accounting for 48.4% of total revenues. The increase was mainly due to higher revenue sharing costs and related taxes in line with our revenue growth. Based on the evolve, our gross profit was RMB 18.3 million in Q2 compared to RMB 19.5 billion in the same period last year. gross profit margin was 51.6% compared to period last year.

Turning to expenses in Q2, selling marketing expenses were RMB 9.9 billion compared to RMB 10.5 billion in the same period last year. selling marketing expenses decreased to 27.9% of total revenues from 30% in Q2 last year. primarily attributable to the lower spending for promotional activities, R&D expenses increased to 34.7% year-over-year to RMB 4.6 billion accounting for 12.9% of total revenues. The increase was mainly due to increased investments in AI, including related costs, Administrative expenses were RMB 895 million compared to RMB 897 million in period last year, remaining relatively stable year over-year.

Group net profit for Q2 was RMB 3.2 billion. Group level adjusted net profit was RMB 3.9 billion with an adjusted net margin of 11%. Our balance sheet remains robust cash and cash equivalents, time deposits and financial assets and its restated cash totaled RMB 121.3 billion as of June net cash generated from operating activities in Q2 was RMB 5.9 billion. Additionally, we actively leverage delivered our commitment to shareholder returns based on marketing conditions. As of today, we had repurchased approximately HKD 1,970 million or around 43.3 million shares, representing about 1% of our total shares sitting for 2026.

Looking ahead to the second half, as Huaxia mentioned, amid external challenges we expect to face near-term intelligence as pressure on revenue and our continued investment in AI, both weigh on profitability, we will continue to uphold our technology revenue user-centric cell philosophy, while maintaining deeply focused on our users' needs. We remain story committed to advancing AI averaging our leading AI technologies to further empower our content ecosystem and commercial value chain. At the same time, we will apply prudent financial discipline to reduce costs and improve efficiencies will further strengthen the company's competitiveness moat and create long-term value for our users, partners and shareholders.

That concludes our prepared remarks. Now we can open for the call for Q&A.

Kenneth Fong from UBS.

[Interpreted] Congrats on the very stable cooperation and robust growth of Kling. I have a question regarding Kling competitive landscape and the iteration direction. Recently, multiple video generation, large language model have been updated successfully. So how should we view the current competitive landscape of the video generation models? And what is Kling competitive strategy?

[Interpreted] Thank you for your question. The global market for video content generation represents a massive USD 150 billion opportunity. AI media generation models have substantial potential for user adoption, we believe the AI video generation segment is currently in a vibrant phase with the diverse stakeholders, maximizing their strengths to drive industry upside. As industry players leverage their respective platform systems, vertical scenarios and technological capabilities to compete through differentiation.

The commercialization boundaries of AI video generation continue to expand across diverse areas including advertising, e-commerce films, short plays and gaming compared with relatively fragmented competitive landscape of large language models -- today's AI video generation segment features a more concentrated market structure with a clear dominant leaders in a higher level of concentration among Tier 1 players, video generation models also requires significantly greater levels of computing power, data, talent and technology.

Over the past 2 years, Kling AI has consistently remained among the Tier 1 players in the AI video generation segment. The clean AI team continued to demonstrate strategic foresight into the industry. and strong execution capabilities. In June 2024, we launched the world's first commercially available video model product based on the DIT architecture. In April 2020, we introduced the world's first multi-model visual language interaction architecture [indiscernible].

In December 2025, we released the world's first omni model-based multimodal V2 generation model -- our track record has consistently proven that the clin AI team is among the industry's top teams worldwide, leading with a strong research, engineering and strategic execution capabilities Recently, Kling AI closed an independent financing round, which will further enhance its competitiveness in the industry.

Since this launch, Kling AI has focused on serving professional content creators by leveraging video generation large model technology to improve the productivity of professional creators who make video creation in their career and have sustainable purchasing power. Kling AI features strong prompt understanding and controllable store board communities enabling users to achieve precise and coherent creative expression.

In terms of deal quality and production scalability, Kling AI also satisfies professional creators need for high-quality video content. Kling AI is world's first video generation model supporting native 4K output. Users can generate 40 beds with a single click without the need for additional upscaling or processing, resulting in a clear visuals, richer details in a more cinematic look and feel.

Overall, we are highly confident in Kling AI's long-term competitiveness in the new generation segment as model capabilities continuously iterate product experience continues to improve in the professional creator consistent and commercialization stares further expanded. At the same time, the AI video generation sector is rapidly gaining broader adoption and Kling AI will consistently unlock greater growth potential.

The next question comes from Lincoln Kong of Goldman Sachs.

[Interpreted] My question is also about AI strategy. So other than Kling AI, this quarter, what are the other areas in terms of the Al [indiscernible]?

[Interpreted] During the quarter, our AI advancements extended beyond the clean AI iteration. We also made tangible achievements across organizational efficiency, AI applications in online marketing services scenarios in our core recommendation systems iterations.

Regarding AI applications in online marketing services scenarios, we have deeply integrated AI across key processes, including the generation of AI GC marketing materials intelligent bidding and generative recommendation. In the generation of marketing materials, we connected user interest modeling with video production capabilities enabling an upgrade from searching for marketing material for videos to creating videos tailored for users.

On the intelligent bidding front, leveraging marketing clients historical account data on marketing placement and conversion goals our agent system developed self-learning and continuously optimized automated bidding strategies. This effectively improved long-term customer value and marketing placement performance, delivering strong ROI and for generative recommendation, our models can truly understand amortizing content and user needs. -- by converting products, live streams, search queries and industry information into semantic representation, we improved user product matching efficiency.

Regarding the iteration of our recommendation systems, we launched AgentX and agent-driven R&D close [indiscernible] in the past, taking a recommendation strategy from idea to launch often involved in multiple steps, including data analysis, solution design, product code modification, experiment configuration, AV testing and monitoring metric attribution and post-launch review. This process relied heavily on menu execution by algorithm engineers, which limited efficiency.

Today, our Agent serves as the execution engine for recommendation iteration, freeing engineers from a wider range of repetitive tasks and enabling them to focus on gold setting critical reviews and higher-level judgment and decision making. As a result, we significantly enhance both the innovation efficiency and the performance of our recommendation strategies.

In terms of organizational efficiency improvement and organizational enablement, our in-house developed agent tools, including my flicker, have achieved over 90% employee adoption. They fully cover diverse functions, including technology, R&D, data analytics, business operations. These tools have significantly enhanced our internal productivity. Using technological R&D productivity, as an example, in the second quarter of 2026, our technological R&D team's average delivery cycle was shortened by more than 10% compared with the first quarter.

Meanwhile, the average daily lines of cold submitted on AI-assisted R&D increased by over 70% sequentially. AI's contribution rate to newly added code exceeded 60%. Kuaishou Vanchin not only efficiently supports internal AI use cases, but also provide a large model infrastructure services to a wide range of external enterprise clients achieving strong revenue growth.

In summary, we will consistently harness AI to deeply empower our business and our organization, continue to expand the boundaries of AI applications and work together with our partners to jointly explore and create more innovative business value and greater growth upside.

The next question comes from Thomas Chong of Jefferies.

[Interpreted] In my top the uncertainties of macro environment and industry competition, what are our strategies to reduce merchants' operational pressure and empower merchants to growth? On the other hand, how should we think about the online shopping outlook in second half?

[Interpreted] Thank you for your question. In Q2, macro demand remained under pressure, while industry competition remained intense against this backdrop, merchants are seeking greater visibility and certainty in their business operations. This also shapes our merchant side initiatives. We segmented based on their business profiles and implemented tiered operations by offering more tailored operational support initiatives and resources, we helped merchants of all types to find the right growth opportunities on Kuaishou.

First, starting in Q2, we restructured our merchant-facing teams by business type, aligning differentiated strategies with each segment's core needs and main policies and resources back to more appropriate levels. Previously, support was misaligned brand merchants lack dedicated professional services. ad-driven merchants received e-commerce resources disproportionate to their revenue contribution, influencer and content treatment merchants already rich in organic traffic needed sustainably above all.

Merchants centralized brand merchants under a specialized team, we allocated mismatched resources away from ad-driven merchants and used food platform fan reach to improve long-term viability for influencer and content-driven merchants. Building on this week continue peered targeted support for brands large merchants, industry zone merchants and SMBs, maintaining policy stability in continuity while ensuring more precise resource allocation.

Meanwhile, we deeply integrated capabilities in Kuaishou's daily operations and cost management across now such as marketing material creation, intelligent marketing, intelligent after-sales services and AI powered customers help merchants restraint more productive growth initiatives. This year, brands and industry zones remained our strategic priorities on the supply side. since Q4 last year, tighten relevant compliance regulations has narrowed the gap in compliance costs across different merchants, leading merchants to set higher ROI requirements for their marketing investments.

Against this backdrop, brand merchants advantages and operational capabilities and business stability became increasingly evident Meanwhile, it has significantly lowered the barriers to content creation. We have further focused to brand subsidies on key blockbuster products. As a result, brand merchants have entered a positive growth cycle along Kuaishou, we were pleased to see brand merchants demonstrate a genuine commitment to the platform and a focus on building and growing their businesses rather than simply using Kuaishou for brand exposure or to drive transaction off platform.

In Q2, contribution of self upgraded GMV from brands to overall GMV increased steady. While the share of marketing spend from brand merchants and total marketing spend also grew steadily. On the industry zone side, we leverage is providers to deepen our presence across industries nationwide and empower local merchants. This year, we have gradually rolled out this model in regions, including Inamangolia, [indiscernible] through these operational initiatives and growth incentives, we provide a tangible support to merchants with a distinctive regional offerings, helping them establish a foothold on quite and scale their businesses.

Looking ahead to the second half, we believe the overall consumer demand will continue moderate recovery, while the shift in consumer spending from discretionary to essential categories will persist -- this means that merchants will increasingly prioritize greater predictability in their business operations and the days of relying purely on traffic dividends to drive business growth are behind us. while we continue to provide merchants with the traffic resources and commission rate support, we expect e-commerce marketing service revenue and commission income to face pressure in the second half.

For the platform, this represents both challenges and opportunities. We'll continue to steer our traffic synergy strategy towards brands and balanced performance with both the ability and commitment to sustain long-term options while further strengthening our intelligent placement and capabilities to help merchants achieve greater predictability in their marketing placement. We believe that by strengthening our tier market -- merchant operations and optimizing our supply structure, we will capture structural opportunities to drive high-quality growth in our e-commerce business. This is also essential to rising above short-term cycles and achieving sustainable long-term growth.

The next question comes from Daniel Chen of JPMorgan.

[Interpreted] So my question is on the non-e-commerce advertising. How does management assess the trend of this segment, service in the second half of this year? And also what has been the enablement and impact of AI on the online marketing service for this quarter?

[Interpreted] Thank you for the question. The worth of the online marketing services is affected by the broader macro environment in our clients' marketing budgets. Looking into the second half of this year, we believe visibility on the external environment remains limited. Meanwhile, AI applications and instant retail, which grew rapidly in the second half of last year, we faced a relatively high base in the second half of this year. Customer budgets will -- may also be affected by industry competition dynamics and changes in marketing strategies. That said, we continue to see structural opportunities in some industries.

First, in the [indiscernible] consumption sector, led by short place, we believe that this market still has room to grow. AI continues to reshape the supply side of a shorter play segment. significantly reducing production costs and shortening production cycles while enabling a broader range of vision risk, content formats and rather supply. In 2025, the number of [indiscernible] plays episodes on Kuaishou was 60,000, and we expect the number to reach 500,000 in 2026 and going forward, we expect the industry to gradually shift from quantity expansion to content quality.

Meanwhile, with the value of short-play content ecosystem has become increasingly evident with the daily impressions on Kuaishou short place reaching 230 million in July 2026. The money transition model for short plays has all evolved in-app as account for an increasingly larger share indicating that short plays are gradually developing into an ecosystem-based business model. that it combines content consumption value with incremental marketing inventory.

Looking ahead, content formats could potentially extend beyond the traditional viewing into areas such as IP adoption and spin-offs interactive short play in a virtual companionship and integrating content with the culture of tourism and creative industries. These new formats could unlock new opportunities for content consumption and monetization. Against these trends, we expect to capture the growth opportunities in content adoption through revenue-sharing incentives, omni domain traffic support and partnership with the high-quality content copyright holders, our platform's high-quality content will achieve more stable traffic and monetization returns.

Second, we'll still have room to grow in certain verticals where our penetration remains insufficient, for example, in the lifestyle services sector -- the business is closely tied to the broader macro environment, but it also covers a wide range each with substantially different merchant operating models, user decision-making journeys and conversion goals. This will allow us to continue unlocking incremental growth opportunities in verticals such as beauty and wellness, home renovation and decoration and real estate through more refined industry-specific operations.

In the gaming vertical, there's a strong gaming content consumption on Kuaishou, but monetization is still catching up. We're currently exploring opportunities to better connect the gaming live streaming and get content with marketing budgets to unlock more monetize. In the AI era, the barriers to developing mini games are also becoming even lower, which could drive more supply and incremental marketing demand.

Regarding AI's empowerment of online marketing services, as our clients place greater emphasis on operating efficiency and marketing placement AI has been an important lever for us to help clients improve the efficiency, reduce costs and unlock additional marketing budgets. Specifically, for marketing materials, AI has significantly lowered the barriers to creation. For example, in industries such as local services and AI tools, AI helps customers and service providers to produce content and marketing materials that are more suitable for Kuaishou users in a faster and more cost-effective way, which has also driven growth in marketing demand from these industries.

Secondly, in customer operations, AI is being applied to more workflow such as business opportunity, insights, product selection suggestions, placement diagnostics and performance review as well as customer service. This helps customers and service providers standardize and automate processes that previously relied heavily on manual work thereby improving operating efficiency. Meanwhile, on the platform side, we continue to see AI models to improve the matching and convert efficiency of our advertising system.

For example, through better understanding of manatees and user interests as well as intelligent bidding and intelligent price adjustment capabilities can help advertisers match their budgets more efficiently with the right users and scenarios. In summary, structural growth opportunities for online marketing services will continue to emerge in the second half. We'll continue to harness AI as a key capability to optimize marketing efficiency and marketing place an ROI, driving operational efficiency improving and commercialization growth for our clients. Thank you, operator.

The last question will come from Yuan Liao of Citi.

[Interpreted] And looking forward to the second half year, what is your plan for cash flow expenditure and the total cash flow situation Kuaishou?

[Interpreted] Kling AI financing will have more flexibility in managing cash flow expenditures, including addressing additional computing power needs through leasing and other approaches. This will further optimize capital allocation and to some extent, improve the group's overall cash flow position. Regarding cash management and capital expenditures, we will continue to adhere to a prudent financial strategy.

In terms of execution, the majority of our CapEx was heavily front loaded in the first half of the year. As a result, the company achieved a positive cash flow in the second quarter, and our objective is to maintain positive group level free cash flow in the second half of this year.

On shareholder returns, we have always focused on creating long-term value and consistently executed a proactive shareholder return strategy. Since the beginning of the year, the company has completed share repurchases at an aggregate consideration of approximately HKD 2 billion, and the company has paid HKD 3 billion in cash dividends total shareholder returns have already reached close to last year's full year level. While we ramain firmly committed to investing in our AI strategy, we have steadily enhanced shareholder returns. We expect the total shareholder earns for the 2026 full year to exceed last year's level.

These initiatives not only represent a tangible return to our shareholders, but also demonstrate the company's ability to generate sustainable cash flows and its confidence in the long-term development of our business.

We fully embraced the AI era and at the same time, we'll continue to safeguard and strengthen our company's financial foundation. We're committed to driving cost reductions and efficiency improvements through prudent financial display while maintaining a robust and healthy cash position. Harnessing our resilient financial structure as Kuaishou, we will achieve a healthy and sustainable balance between business expansion and shareholder returns. -- laying a solid foundation for high-quality, long-term growth.

[Interpreted] Thank you, operator. That's the end of the Q&A session.

[Interpreted] Thank you once again for joining us today. If you have any further questions, please contact our capital market and IR team at any time. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Ladies and gentlemen, thank you for standing by. Welcome to Kuaishou Technology Q1 2026 Financial Results Conference Call. Please note that English and interpretation will be provided for management prepared remarks. [Operator Instructions] And this meeting is being recorded.

Now I'll turn the call over to Mr. Matthew Zhao, VP of Capital Markets and IR at Kuaishou.

[Interpreted] Thank you, operator. Good evening, and good morning to everyone. Welcome to Kuaishou Technology Q1 2026 Financial Results Conference Call. Joining us today are Mr. Cheng Yixiao, Co-Founder, Chairman and CEO; and Mr. Jin Bing, CFO. Before we start, please note 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 obligations to update any forward-looking information, except as required by law. For important information about this call, including forward-looking statements, please refer to the company's public information on our first quarter 2026 results announcement ended March 31, 2026, issued earlier today.

During today's call, management will also discuss certain non-IFRS financial results. 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 Q1 2026 results announcement.

For today's call, management will use Chinese as the main language. A third-party interpreter will provide simultaneous interpretation in prepared remarks session and consecutive interpretation during the Q&A session. Please note that English interpretation is for convenience purpose only.

In case for any discrepancy, management statements in their original statement will prevail. Lastly, unless otherwise stated, all currency units mentioned are in RMB. Now I hand the call over to Yixiao.

[Interpreted] Welcome to Kuaishou's Q1 2026 Earnings Conference Call. In Q1 2026 amid a complex and evolving macroeconomic environment, we continued to advance our AI strategy execution. Kling AI maintained its global leadership in multimodal video generation and AI technologies continue to enhance the vitality of our content ecosystem, expand monetization and improve organizational efficiency.

In Q1 2026, the average DAUs on Kuaishou APP reached over 413 million total revenue increased by 3.4% Y-o-Y to RMB 33.7 billion. Revenue from our core commercial business, including online marketing services and other services, primarily e-commerce, increased by 10.7% Y-o-Y.

Adjusted net profit reached RMB 3.4 billion with an adjusted net margin of 10%. Kling AI demonstrated strong momentum, driving our second growth curve, sustained its global leadership in model capabilities and a product experience while achieving rapid monetization growth. In Q1, Kling AI generated revenue of over RMB 650 million, representing Y-o-Y growth of more than 300%.

Next, I will walk through the details of our major business segments in Q1 2026. First, our AI strategy and the progress of our large video generation model, Kling AI. In Q1, Kling AI continued to advance its vision of empowering everyone to craft captivating stories with AI. Through ongoing model iteration, intelligent product upgrades and deeper penetration across professional scenarios, Kling AI further reinforced its global leadership in AI video generation.

At a model and technology level in February 2026, we launched the Kling AI 3.0 model series built on an all-in-one product framework, the Kling 3.0 model series supports full multimodal inputs and outputs spanning text, images, audio and video, integrating audio, video understanding generation and adding one streamlined AI workflow. While supporting video generation of up to 15 seconds, the Kling AI 3.0 model series delivers highly flexible storyboard control and a more precise semantic alignment, incorporating simultaneous audio-video generation capabilities with strong subject consistency to further extend the boundaries of AI storytelling.

At a product level, Kling AI Lab Agent mode upgraded the creative experience from stand-alone tools to an intelligent agent-driven system with features including multi-turn conversational editing and multi-prospective intelligent shot expansion. In addition, Kling AI launched the Team Plan, supporting real-time collaborative creation for up to 15 members and enabling creators to efficiently manage content creation workflows among teams.

Recently, we launched the 'Baseball Live' effect, which once again ignited a global AI creation frenzy and swept across social media platforms worldwide. This viral hit propelled Kling AI to the top of the overall app store charts in 42 countries and regions, including Germany and Brazil. Kling AI has continued to focus on the core needs of professional creators across the film and television, advertising, e-commerce and gaming sectors, supporting content production with end-to-end industrial grade capabilities and driving meaningful cost reduction and efficiency improvement.

Kling AI was used in the creation of selective virtual scenes and visual effects shots in the hit Chinese historical dramas Swords Into Plowshares. In the Hollywood series House of David. Kling AI supported generation of hundreds of high-quality shots, including grand scenes and complex battle sequences demonstrating its exceptional strength in commercial film and television production.

With broader adoption across professional creative scenarios, Kling AI's commercialization has accelerated. In Q1 of 2026, Kling AI generated revenue of over RMB 650 million, representing growth of more than 300% year-over-year.

In March, Kling AI's annualized return run rate, ARR reached approximately USD 500 million. We made continued solid progress advancing the research and development of our general purpose models and in deploying AI-driven enhancement across all our commercial and organizational ecosystem. At the general purpose multimodal level, we released KAT-Coder-Pro V2, an agentic coding model with strong capabilities in front-end UI aesthetics, command-line reasoning and agent execution.

It is compatible with mainstream AI coding tools such as Claude Code. It has been trained and optimized for OpenClaw and is capable of navigating complex real-world application workflows. In terms of AI empowerment for our commercial ecosystem, we continue to deepen the application of our generative recommendation large models and intelligent bidding models in online marketing services scenarios, driving roughly 4% growth in domestic online marketing services revenue in Q1.

To optimize our generative recommendation large models, we incorporate multimodal aligned advertising in [embeddings] by combining value-aware supervised learning with ranking-guided reinforced learning, we improved the quality of material recognition candidate set. We also enhanced inference efficiency through model optimization at inference stage, further improving model performance.

For e-commerce business scenarios, the new generation generative search framework, OneSearch V2 was fully rolled out across e-commerce search scenarios in Q1. Through tech innovation, we have introduced a self-distillation generative search framework based on latent space reasoning and enhance the models inference capabilities and search experience without incurring additional inference costs and/or service latency, which drove incremental GMV growth of approximately 3% in our e-commerce search business.

At organizational ecosystem empowerment level, Kuaishou's proprietary coding to CodeFlicker has driven AI-generated code penetration to over 50%. It's also evolved into a company-wide general purpose agent, My Flicker, expanding its use scenarios from engineering coding to broader employee-facing scenarios. It now empowers functions across R&D, product, operations, data, et cetera, enhancing overall organizational efficiency.

Second, user growth and content ecosystem. Q1 average DAUs on Kuaishou App reached 413 million and MAU reached 772 million. Average daily time spent per user remained relatively stable. By providing differentiated premium content, iterating our traffic mechanisms and expanding social interaction scenarios around Chinese New Year, we offer users a higher quality and more heartwarming online community with distinctive Kuaishou characteristics.

In refining our distribution mechanism, we balance user experience with monetization efficiency, resulting in increased exposure for premium content. In terms of user growth quality, we further refined operations across all channels. By integrating user acquisition spending with monetization scenarios and continuing to innovate our user retention strategies, we successfully improved user growth ROI.

During the 2026 Chinese New Year holiday, we created an immersive online Spring Festival experience to drive high-quality user growth through innovative interactive features and extensive premium content matrix, achieving a new historic peak in DAUs. In terms of content ecosystem, we launched a series of Kuaishou characteristic content IPs, including Kuaishou Spring Festival Gala for the Year of the Horse, Liu Laogen Grand Stage, Northeast Comedy Show.

Leveraging Kling AI, we released the AI-generated Chinese New Year animation short play series. The Show Gallops On. These initiatives fostered vibrant festive atmosphere for users while amplifying the popularity and influence of Kuaishou native content. User social interactions increased significantly during the Chinese New Year campaign.

The number of user pairs using our social interaction product Huo zaizai grew by 25% compared with the pre-spring festival period. And the number of users sending private messages increased by 15%. These initiatives fostered the vibrant festive atmosphere for users while amplifying the popularity and influence of Kuaishou native content. Data showed that our 2026 Chinese New Year programs generated over 15 billion live streaming views and more than 250 billion short video views and over 6.5 billion cumulative likes propelling user growth and reinforced using mindshare [indiscernible].

Third online marketing services, Q1 revenue from online marketing services reached RMB 19.6 billion, up 9.3% Y-o-Y with revenue from domestic online marketing services growing by more than 10% year-over-year. In Q1, the content consumption and lifestyle services and AI application sectors were the primary drivers of our non-e-commerce marketing services revenue and the content consumption sector, AI reduced production costs and lowered the creative threshold for comic-style short plays, driving rapid growth in content supply and related marketing demand.

As of the end of March 2026, the peak of daily marketing spend on Kuaishou comic-style short plays exceeded RMB 20 million. Within the lifestyle service sector, where clients a primarily operate on a lead-based model, we advanced more refined industry operations across 20 verticals, including health care, industrial and agriculture materials, [education] and automotive.

By tailoring our solutions to the conversion characteristics of a different industries, we help merchants improve customer acquisition efficiency and drove incremental advertising spend across these sectors. At the same time, we help the merchants reach potential customers more efficiently and improve user conversion rates through product upgrades.

In addition, during the Chinese New Year period, demand for marketing placement in the AI application vertical was strong. We effectively captured relevant budgets and optimized the deep conversion outcomes contributing to AI application clients increased marketing spend and commitment to our platform.

In Q1, we accelerated penetration of AI across diverse online marketing services scenarios covering the full pre-placement, in-placement and post-placement life cycle. This improved client placement experience and drove growth in total spending from online marketing services. In pre-placement, the generation of AIGC marketing materials enable merchants to produce materials at a lower cost and more efficiently.

As of March, AIGC short video marketing material spending contributed 10% of total short video online marketing spending on our platform. At the in placement stage, our Universal Auto X placement solutions became the dominant placement tool adopted by most online marketing clients. During the quarter, we added a new AI agent feature to UAX placement solutions.

By learning from the best practice in placement optimization, creative generation and editing across verticals, our UAX placement solutions automatically assisted our advertising teams with tasks such as ad unit creation and bid management, improving overall placement efficiency and post-placement stage AI-driven analytics automatically reviewed the performance data and provided a timely feedback to clients, reducing manual operational workload. Meanwhile, our digital employee solutions offered 24/7 automated responses, enabling clients to handle [consuming] inquiries in real time, especially during periods such as overnight hours when human support is limited.

For e-commerce marketing services, we further advanced and deepened our omni-domain traffic synergy strategy through improved the coordination between organic and commercial traffic pools, enhancing e-commerce traffic exposure and business growth of brand merchants. In Q1, we onboarded an increasing number of brand merchants and small and medium-sized merchants.

The number of active merchants using marketing placements increased by 38% Y-o-Y and brand advertising spend increased by 42% Y-o-Y, supporting GMV growth for brand merchants self-operated business across the omni-domain scenarios.

Meanwhile, AI capabilities have been fully integrated across our end-to-end e-commerce marketing placement workflows. Through the coordinated efforts of user interest in AI agent, creative and production selection AI agent and building selection AI agent, both marketing placement precision and efficiency improved.

On the product side, with continuous upgrades to omni -- our Omni-platform Marketing solutions accounted for a greater share of our total spending from e-commerce marketing services and became the primary placement offering for our e-commerce marketing services.

Our Net Transaction ROI product help merchants optimize their net transaction GMV, enabling more stable settlement outcomes. In Q1, client penetration rate reached 45% across industries and meaningfully reduced product return rates. Meanwhile, our Full-store Hosting model allows merchants to overcome single product placement constraints through one-click store-wide placement, freeing up manpower.

Fourth, e-commerce. We will advance our e-commerce strategy through 3 key upgrades, prioritizing paying user growth, supply acquisition and deeper integration of e-commerce and commercialization traffic. This will enable merchants to better capture the end-to-end synergies across omni-domain scenarios, amplifying growth momentum.

In Q1, by steadily advancing strategy, our e-commerce business achieved a sustainable healthy growth. We remain committed to strengthening omni-domain traffic synergies and refining operations across the full buyer lifecycle to drive long-term growth in our e-commerce supplier base.

In Q1, on the supply side, we prioritized onboarding brand merchants and new merchants while further improving the quality of product supply in the first quarter. For brand merchants, we continue to advance our Voyage Initiative, which we launched in the fourth quarter last year.

Targeting top-tier brands across diverse verticals to support them on multiple fronts, including traffic operations and brand building. In the first quarter, driven by incremental growth from new brand merchants and brand merchants contribution to overall e-commerce GMV and commercialization continued to increase, maintaining strong year-to-year growth. Meanwhile, existing merchants continue to scale and stabilize their operations while strengthening the health of resilience of e-commerce supply ecosystem.

In new merchant acquisition, we worked closely with our service providers across 100 targeted priority industrial zones nationwide. In Q1, the number of new merchants onboarded in the industrial zones increased by 41.8% Y-o-Y. In addition, in collaboration with the industry teams and SME merchants teams, we actively empowered a new merchants to thrive across our full lifecycle from onboarding and early growth to scaling through a mix of merchant incentive programs, operational tools and business safeguards and marketing initiatives. In Q1, the number of SME merchants grew significantly, leading to a healthier merchant structure and a more diversified supply.

In Q1, we further improved our KOL ecosystem structure. This enhanced the supply of high-quality e-commerce content and we continue to strengthen support for mid-tier KOLs. In January, we launched a Treasure Streamer Spotlight Initiative, leveraging platform resources to identify and support outstanding KOLs across verticals and help them scale.

In addition, we further refined our incentive policies, which significantly improved KOL streaming frequency. In Q1, the number of average daily active streamers hosting live sessions with over 10,000 followers grew 10.1% year-on-year. To empower KOLs, we began working with distribution and industry initiatives and providing top-tier merchants and KOLs with diversified monetization growth opportunities by expanding the reach of high-quality products with distinctive Kuaishou e-commerce characteristics to a broader user base.

Through subsidy initiatives such as KOL Blockbuster Initiative, along with continued optimization of our distribution product allocation capabilities, we improved the efficiency of KOL product matching.

In addition, we hosted offline matchmaking events between merchants and KOLs and introduced tiered services for KOLs at different levels, enabling high-precision distribution matching. In Q1, the number of merchant KOL matches in the distribution pool increased by 47% year-over-year, while the number of active KOLs participating in distribution grew by 23.5% Y-o-Y.

Our omni-domain e-commerce operations ecosystem continued to show strong growth momentum as we strengthen coordination between content-based and shelf-based scenarios through intelligent subsidies and refined operations across the full user lifecycle. We achieved end-to-end efficiency improvement from product recommendation to repeat purchase, building a stable and sustainable growth foundation for merchants.

Content-based scenarios continued to serve as an important driver of user demand. As user consumption habits increasingly extending through browsing, search and shopping mall exploration, our omni-domain consumption mindset among users has gradually taken shape. In Q1, e-commerce intent-driven search TV grew 11% year-over-year, while new and returning buyers in the shopping mall increased by approximately 36% in March, indicating users strong active in shopping intent. In addition, richer supply drove an increase in purchase frequency among pan-shelf-based e-commerce users.

End-to-end AI capabilities, we delivered tangible operating efficiency gains for merchants and upgraded user experience, leveraging large model capabilities, we comprehensively upgraded shopping decision-making process through end-to-end empowerment spanning user latent demand activation, search engagement, guided shopping and live streaming rooms and finally, subsidy distribution.

Built on large model technologies, we launched an upgraded search experience by introducing an AI agent-based one-stop intelligent shopping assistant. With this upgrade search evolved from user initiative product lookup to an AI-led product recommendation, significantly improving search conversion efficiency.

In addition, leveraging AI to empower sales operations, we optimized the process of guided shopping in live streaming rooms. The live streaming scenarios, real-time product highlight summarization and AI-powered auto-reply hosting feature generated over 10 million in incremental GMV per day for merchants.

Next, regarding our live streaming business. In Q1, live streaming revenue reached RMB 8.5 billion. We remain committed to the health of live streaming ecosystem as our core priority, focusing on supply quality improvement, content enrichment and AI innovation to build a sustainable live streaming ecosystem for long-term growth.

We continue to support high-quality content categories such as premium group live streaming and strengthened the professional operations of partner talent agencies, solidifying the foundation of live streaming supply. On the product and technology front, AI capabilities further empowered live streaming rooms, AI tools, including AI Interaction Assistants, Digital Avatar Solutionss and AI Private Messaging improved the streamers' service efficiency and enhance the viewers' engagement experience. Kling AI's video generation strength significantly empowered live streaming gift creations, accelerating AI gift rollout and enriching creative expression while boosting user willingness to pay.

In Q1, the AI Universe series gifts with customizable special effects sent by users reached 1.1 million. In content, we launched a diverse range of a live streaming interactive features during the Chinese New Year to build engaging live stream scenarios. The Kuaishou Mastermind quiz series featured over 100 AI digital human streamers generated by Kling AI, interacting with users throughout the experience and attracting nearly 50 million users to actively participate.

At the same time, we further strengthened our gaming content ecosystem. During the Chinese New Year, we launched a Spring Festival Player Carnival campaign, partnering with over 50 game developers and collaborating with major game IPs to roll out exclusive content and user benefits.

Moreover, our esports business, a key strategic pillar of our gaming system achieved a breakthrough. In April, Kuaishou's KSG team won the King Pro League Spring 2026 Championship, driving the further evolution of the gaming system.

Finally, about our overseas business progress. In Q1, we continuously explored high-value growth strategies for our overseas business while responding to market changes with business resilience. In terms of traffic, we continued optimizing user acquisition efficiency and user growth mix to cultivate our community ecosystem rooted in real life.

Meanwhile, we further expanded the content verticals favored by our core users to deepen their engagement. Brazil, a key market for overseas development and maintained steady average DAUs and average daily time spent per DAU quarter-over-quarter. For online marketing services, we consistently strengthened our advertising product capabilities by leveraging AI to fully empower our end-to-end marketing workflows, improving placement efficiency and performance stability for clients. At the same time, we capitalized on our strength at content platforms, localizing commercial creatives to unlock incremental advertising budgets particularly from core sectors led by cross-border e-commerce suppliers.

Our e-commerce business in Brazil achieved a solid year-over-year growth in GMV and order volume in the first quarter. By strengthening key categories and high-quality product supply, we grew conversion and repeat purchase rates. Meanwhile, through AI-assisted content production and content recommendation, we continuously optimize operational efficiency and profit-generating capability.

In summary, confronting many challenges and rigorous test, we remain steadfast in our core AI strategy, breaking through barriers with our deep tech and ecosystem strength. Looking ahead, we will navigate uncertainties with long-term results, continuous deepening AI integration to long-term value for all stakeholders and unlock new growth together. And that concludes my remarks. Thank you. I'll hand it over to Jin Bing.

[Interpreted] Thank you, Yixiao. In Q1, we continued to advance our AI strategy and made meaningful progress leveraging our leading AI capabilities. We deepened our empowerment of Kuaishou's client and business ecosystem, delivering healthy steady growth across both our operational metrics and financial performance.

We continue to broaden the application of AI large models across business scenarios, further optimizing user experience and enhance operational efficiency for our business partners. At the same time, AI is rapidly realizing its commercial value as the company's second growth curve.

In Q1, the group's total revenue reached RMB 33.7 billion, with revenues from our core commercial business, which includes online marketing services and other services, primarily e-commerce growing 10.7% year-over-year.

Notably, Kling AI generated revenue of over RMB 650 million, representing a year-over-year growth of more than 300%. Adjusted net profit was RMB 3.4 billion with an adjusted net margin of 10%. While continuing to scale our investments in AI, we maintained the group's overall profitability and operational cash flow at a healthy level.

Now let's take a closer look at our Q1 financial performance. Our total revenue grew 3.4% year-over-year to RMB 33.7 billion in Q1. The increase was mainly driven by growth across our online marketing service, e-commerce and Kling AI businesses.

Online marketing services revenue increased 9.3% to RMB 19.6 billion in Q1 from RMB 18 billion in the same period last year. This growth was primarily driven by the accelerated penetration of AI across diverse online marketing services scenarios, which use marketing material generation costs for clients and optimize their placement experience while also improving conversion efficiency and driving higher spending by our marketing [client].

Revenue from other services, including our e-commerce and Kling AI business is reached RMB 5.6 billion in Q1, up 15.9% from RMB 4.8 billion in the same period last year. The increase was mainly driven by the continued expansion of our Kling AI business. By continuously refining Kling AI's foundation models and developing more innovative features.

We have broadened the adoption of professional creative scenarios accelerating its commercialization. In Q1, our live streaming revenue was RMB 8.5 billion. We consistently cultivated high-quality content offerings, expanded live streaming scenarios and leverage AI-powered product innovations to develop a reach and healthy live streaming ecosystem and diverse high-quality content.

Cost of revenues increased 11.1% year-over-year to RMB 16.5 billion in Q1 and accounted for 48.8% of total revenue. The increase was mainly due to higher revenue sharing costs and revenue growth as well as increased bandwidth expenses, server custody costs and depreciation of the property and equipment and right-of-use assets and amortization of intangible assets. Based on the above, our gross profit was RMB 17.2 billion in Q1 compared to RMB 17.8 billion in the same period last year.

Gross profit margin was 51.2% compared to 54.6% in the same period last year. Turning to expenses in Q1 selling and marketing expenses were RMB 10.3 billion compared to RMB 9.9 billion in the same period last year. Selling and marketing expenses slightly increased to 30.6% of total revenue from 30.4% in Q1 last year, primarily attributable to increased a spending in promotion activities.

R&D expenses increased 9.8% year-over-year to RMB 3.6 billion, accounting for 10.7% of total revenue. The increase was mainly due to higher employee benefit expenses, including share-based compensation expenses and increase in investments in AI. Administrative expenses were RMB 770 million compared to RMB 830 million in the same period last year, primarily due to a decrease in employee benefit expenses, including related share-based compensation expenses.

The group level net profit for Q1 was RMB 2.9 billion. Group level adjusted net profit was RMB 3.4 billion with an adjusted net margin of 10%. Our balance sheet remains robust. Cash and cash equivalent, time deposits, financial assets and restricted cash totaled RMB 117.7 billion as of March 31, 2026.

Net cash generated from operating activities in Q1 was RMB 3.1 billion. Additionally, we actively delivered on our commitment to shareholder returns based on market conditions. As of today, we had repurchased approximately HK$854 million around 17.96 million shares, representing about [0.42%] of our total shares outstanding for 2026.

Looking ahead, we will continue to prioritize user needs and remain committed to investing in AI, leveraging our leading capabilities that will further boost the vitality of our content ecosystem and expand monetization, reinforcing our competitive edge in the ever-changing market and creating long-term value for our users, partners and shareholders. This concludes our prepared remarks. Now we can open the floor for Q&A.

[Operator Instructions] The first question comes from Kenneth Fong of UBS.

[Foreign Language] Congrats on a very robust growth on Kling. I have a question on Kling AI. This commercialization progress in first quarter has exceeded expectations. What are the main drivers behind this strong revenue growth? What are the recent use case and primary application scenario for Kling? And how should we assess the future application prospects for the video generation of large language models?

[Interpreted] Thank you for the question. In Q1 2026, Kling AI generated revenue of over RMB 650 million, up more than 300% year-over-year. In March 2026, the ARR of Kling AI was approximately USD 500 million. For those who recall, our ARR stood at USD 100 million in March of last year. So it's increased by nearly fourfold in just 1 year.

The rapid revenue growth was driven by both corporate API services and paid subscriptions from prosumers. The number of paid prosumer subscribers and their monthly ARPU increased rapidly. From the retention perspective, our corporate clients and paid prosumer subscribers maintained healthy retention trends, underscoring Kling AI's robust technology and product capabilities in professional creative scenarios.

This has translated into strong user stickiness, providing a solid foundation for Kling AI's long-term sustainable revenue growth.

Kling AI is built mainly for professional creative scenarios, spanning advertising and marketing, film, television and short plays and gaming. In advertising and marketing scenarios, Kling AI covers the entire visual production lifecycle. Early in the ideation phase, it rapidly generates near final demos that turn creative concepts into tangible visuals. Those same visuals carry through to guide the final production shoot. Kling AI's model capabilities maintained strong ad character and product consistency across different scenes and camera angles, offering advertisers reliable visual support to establish a coherent creative tone.

In film, television and short play scenarios, Kling AI can be embedded into the entire production workflow from script breakdown and concept design for characters and scene to intelligent storyboarding and final video generation, enabling a highly automated creation process that significantly reduces production time lines and costs.

The AI short film paper smartphone, which went to viral in early April this year and accumulated over 100 million online views was produced by 2 non-professional film creators in just 3 days using Kling AI. The creators leveraged Kling AI to generate almost all visual elements covering the full pipeline from storyboarding to final cut. In gaming scenarios, the Kling AI supports the project initiation phase by turning concept upwork into dynamic previews, saving visual effect artists considerable time producing animated moved forward.

Kling AI also supports downstream production by generating assets such as green box renders, in-game narrative sequences and cutscenes.

In terms of the outlook for the applications of large video generation models, we have already seen a compelling signal so far this year. AI-generated short plays have shown strong momentum with AI technologies driving multifold increases in content supply. We have also reasons to believe that as large video generation models continue to achieve breakthroughs, professionally generated content PGC supply, including films, is likely to see the pace of breakout growth.

This would bring not only a dramatic expansion in high-quality professional content supply, but could also enable the integration of more personalized and interactive elements into content, such as bringing users' own identities and personalities into the content itself. This level of highly personalized content consumption could fundamentally reshape the relationship between users and content. Against this backdrop, Kling AI is well positioned to unlock substantial commercialization potential.

Overall, we are highly confident in Kling AI and the broader AI video generation sector, and we will continue to invest in Kling AI's computing power and talent development.

The next question comes from Lincoln Kong of Goldman Sachs.

[Interpreted] So my question is other than Kling AI, what are the other areas we have seen progress on AI front this quarter, especially like AI agents, et cetera?

[Interpreted] Thanks for the question. In Q1 2026, we continue to deepen our AI strategy. Beyond Kling AI maintaining its global leadership in technology, product capabilities and monetization, we also made solid progress in leveraging AI to empower our business ecosystem and improve organizational efficiency.

At the beginning of the year, AI agents such as OpenClaw attracted widespread attention. I'd like to take this opportunity to highlight the progress we've made with AI agents in different scenarios.

In e-commerce marketing services, we launched end-to-end AI agents covering user interest inference, creative production, product selection and marketing bidding decision. In the user interest inference stage, we leveraged AI generative recommendation to consolidate user behaviors on the platform into representations that are interpretable by models.

We expanded the breadth of user interest understanding and harnessed behavioral sequences to uncover deeper user consumption patterns. In the creative and product selection stage, our AI agent help merchants identify materials and products with higher potential to become blockbuster items, offering greater exposure through traffic allocation and ultimately improving the ARPU of material placement.

In the bidding decision inference stage, our AI agent to leverage historical data, intraday traffic trends and traffic pricing across different scenarios to predict optimal bidding strategies, ensuring stable and efficient ad placement. By empowering merchants to achieve their full day ROI targets, we effectively maximize overall marketing placement scale.

Tailored for the local service scenario, we have launched 3 specialized agents, the target users exploration agent, the deeper conversion agent and the sales agents. The target users agent leverages the capabilities of [RMs] to gain a profound understanding of lead-based products and services.

By inferring users' latest needs based on their behaviors on the platform, it significantly improves the conversion rates and the cost stability of clients' marketing placement. The deep conversion agent utilizes the long contact and understanding capabilities of LLMs to accurately grasp user intent. It optimizes model performance, specifically towards deep conversion goals, thereby boosting the efficiency of lead conversion.

Finally, the sales agent integrate merchant-specific and industry knowledge basis. This enables it to respond to customer inquiries like a professional service representative, handle multi-turn conversations and even achieve fully autonomous end-to-end workflow management.

In terms of organizational empowerment, My Flicker, the upgraded version of CodeFlicker has become the AI working patent for Kuaishou employees. It integrates multiple industry-leading large models and possesses core capabilities of a general purpose agent, including proactive response, reasoning and planning and a memory.

Furthermore, it can leverage skills to invoke tools or vertical agents to handle various complex tasks. We're committed to continuously embedding AI capabilities into employees' daily work scenarios, significantly elevating their overall work experience. In summary, we will continue to accelerate the deep integration of AI into our business operations and organizations, creating greater commercial value and growth opportunities for both the company and our partners.

The next question comes from Thomas Chong of Jefferies.

We have seen companies completed the integration of e-commerce and commercial profit in Q4 last year. May I know the results of the integration we see so far in Q1. How should we think about the monetization in e-commerce for the full year 2026.

[Interpreted] Thank you for the question. The integration between e-commerce and commercial traffic was fundamentally designed to align our e-commerce with e-commerce advertising distribution. To be more specific, first, marketing placement helped merchants amplify their advantages in acquiring traffic within e-commerce.

Second, high GPM merchants with strong operating performance were also able to secure more advertising traffic. Following this integration, we achieved increases in e-commerce traffic, our buyer base and a number of merchants across omni-domain scenarios.

In Q1, e-commerce commercialization traffic maintained high single-digit growth. Effective marketing initiatives continuously stimulated and expanded e-commerce buyer interest, driving a more than 20% year-over-year increase in the number of e-commerce monthly active paying users attributable to marketing.

While the number of active merchants using marketing placements showed strong growth momentum, increasing by nearly 40% year-over-year, this mechanism has amplified the scaling leverage available to brand merchants, enabling them to achieve breakthroughs in operational scale while contributing to a healthier merchant structure. As mentioned earlier, we launched the Voyage Initiative last year, benefiting from our own strategic focus this year on brand acquisition and traffic synergy.

GMV generated for brand merchants across omni-domain scenarios increased by more than 25% year-over-year, while advertising spending in brands under the Voyage Initiative increased by 42% year-over-year.

As the macro consumption environment has yet to show significant recovery and compliance policies have weighed on operational efficiency for certain merchants on our platform in the near term, we'll continue to strengthen the foundational capabilities of our intelligent placement solutions, including our omni-platform marketing solutions and our food store hosting.

We're further rolling out our traffic integration mechanism and we will focus our resources on introducing high-quality products and content supply while consistently offering traffic support to brands and merchants with balanced profiles who are capable of and committed to sustainable long-term operations.

Although in the near term, our overall e-commerce monetization rate growth may get impacted slightly, we see this as an opportunity to strengthen our merchant ecosystem. Over the long run, we believe the structural adjustment to the merchant ecosystem will lay a solid foundation for the healthier and more sustainable development of our business ecosystem.

The next question comes from Miranda Zhuang of Bank of America Securities.

My question is about the AI video content. So the AI comic style short plays have been growing very fast recently. How does management view the drivers for this trend? And how do you think about the growth sustainability into the future?

[Interpreted] Thank you for your question. As you noted in Q1, marketing spend on Kuaishou AI comic-style short plays grew more than 10x year-over-year and more than 150% quarter-over-quarter.

As of the end of March, the peak of daily marketing spend on Kuaishou AI comic-style short plays exceeded RMB 20 million. The core driver behind this growth is AI's ability to substantially lower production costs, enabling content supply to expand rapidly and subsequently driving stronger user consumption and marketing placement demand.

First, on the supply side, AI has significantly reduced production costs and lowered the barrier to entry for creators. AI can now handle multiple stages of production, including capture design, storyboarding, special effects, doping and post-production editing. It eliminates the needs for actors filming locations and production equipment, which is significantly shortening the production cycle to just 3 to 4 weeks. Public data shows that the production cost of a single AI comic-style short play ranges from RMB 80,000 to RMB 150,000, approximately 70% lower than traditional short plays.

This cost advantage has lowered the entry barrier for creators and studios, driving rapid expansion in content supply. According to third-party data, around 47,000 AI comic-style short plays were released in March alone. Surpassing the 33,000 short plays that were released over the entirety of 2025.

In Q1 2026, the average daily number of comic-style short plays with active marketing placement on Kuaishou platform grew by 215% quarter-over-quarter. This massive supply expansion has propelled growth in marketing spending on AI comic-style short plays.

Second, on the demand side, AI comic-style short plays not only cater to codes of needs of existing short play viewers, but also expand into broader user segments, especially in genres such as Fantasy, Xianxia and Science Fiction, AI comic-style short plays can transcend the cost constraints and technical limitations of live action production, therefore, maybe more diverse content consumption needs.

Beyond broader industry needs, the fast growth of AI comic-style short plays on Kuaishou is also closely tied to our continued effort in this category. First, as early as 2025, we began to closely track and invest in this emerging segment. We provided 100 million scale traffic support and cash incentives while laying the groundwork early for both content supply deployment -- development and commercialization.

Second, on the supply side, we have been continuously developing the UGC ecosystem to bring more creators and more small and medium-sized [effect] into AI comic-style short plays. We're also helping connect novel copyrights with comic adaptation resources so that high-quality IP can be turned into high-quality AI comic-style short play content more efficiently. Meanwhile, Kuaishou already has a mature content consumption and commercialization ecosystem. This allows us to better support the growing content supply, distribute quality content more effectively and further amplify their commercialization potential.

Looking ahead, we remain optimistic about the continued growth of AI comic-style short plays, and we expect to see robust growth in the medium term. Third-party data projects that the market size for AI comic-style short plays in China will exceed RMB 30 billion in 2026 and surpass RMB 85 billion by 2030.

At Kuaishou we are well positioned with a vibrant user ecosystem, industry-leading video generation models and mature capabilities in content distribution and commercialization. As such, we're confident that through the deep synergies between content and technology, we will drive sustained growth in AI comic-style short plays on our platform.

Thank you. Maybe the last question, please, operator.

The last question comes from Xueqing Zhang of CICC.

My question about financials. Could management share your cash flow management policy? And what are the plans for CapEx and shareholder returns going forward? And will these plans have any impact on the company's cash flow position?

[Interpreted] Thanks for the question. The company has consistently adhered to a prudent capital management strategy, maximizing capital efficiency while ensuring safety and liquidity. We still expect CapEx of approximately RMB 26 billion this year.

And currently, there is no update to this guidance. We expect the majority of the total capital expenditures will be incurred in the first half of this year. In addition, we have taken proactive measures to build advanced procurement and inventory buffers amidst rising computing power prices. This is a deliberate step to manage market volatility, allowing us to better control procurement costs for computing resources when prices move upward.

We consistently prioritize the creation of sustainable long-term value for shareholders. We remain firmly committed to our proactive shareholder returns policy. Through a combination of sustained and stable dividends, share repurchases and other diverse mechanisms, we deliver tangible returns to our shareholders for their trust and support.

This demonstrates our firm confidence in the positive development of our business over the long term and our strong cash flow generation. Building on an annual dividend of HK$3 billion this year, we will continue to actively repurchase shares. We expect total shareholder returns in 2026, including dividends and share repurchases to increase compared to last year with an overall shareholder return yield of around 4%.

In terms of cash flow, even with RMB 26 billion in CapEx, we still aim to maintain positive free cash flow at the group level for the full year. By executing high precision targeted investments, we aim to unlock greater profitability growth in the future. As we firmly invest in our AI strategy, we will strictly manage financial risks and maintain a healthy cash reserve, ensuring a solid financial structure to safeguard our long-term high-quality growth in the AI era.

Thank you, operator. That's the end of the Q&A session.

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.

[Portions of this transcript that are marked

[Interpreted] were spoken by an interpreter present on the live call.]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Kuaishou Technology Fourth Quarter and Full Year 2025 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided for management's prepared remarks. [Operator Instructions]

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

Thank you, operator. Good evening to everyone. Welcome to Kuaishou Technology Fourth Quarter and Full Year 2025 Financial Results Conference Call. Joining us today are Mr. Chen Yixiao, Cofounder, Chairman and CEO; Mr. Jin Bing, Chief Financial Officer.

Before we start, please note 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 and full year 2025 results announcement ended December 31, 2025 issued earlier today.

During today's call, 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 the 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 2025 results announcement.

For today's call, management will use Chinese as the main language, a third-party interpreter will provide simultaneous English interpretation in the prepared remarks session and a consecutive interpretation during the Q&A session.

Please note that English interpretation is for the convenience purposes only. In case of any discrepancy, management's standards in the original language will prevail.

Lastly, unless otherwise stated, all currency mentions are in RMB.

I will now hand the call over to Yixiao.

[Interpreted] Hello, everyone. Welcome to Kuaishou's Fourth Quarter and Full Year 2025 Earnings Conference Call. Over the past year, guided by our tech-driven user-centric philosophy, we accelerated the execution of our AI strategy across all major business areas, our Kling AI, multimodal large video generation models maintain a global leading position, and we continue to leverage our advanced capabilities to empower Kuaishou content and commercial systems. These efforts supported a high-quality growth across the user scale, revenue expansion and profitability.

In Q4 2025, average DAUs on the Kuaishou app reached 408 million, representing solid year-over growth. Total revenues for Q4 2025 increased by 11.8% year-over-year to RMB 39.6 billion. Revenue from our core commercial business, including online marketing services and other services, primarily e-commerce increased by 17.1% year-over-year. Adjusted net profit increased by 16.2% year-over-year to RMB 5.5 billion. For the full year 2025, average DAUs in Kuaishou app reached 410 million, and total revenues increased by 12.5% year-over-year to RMB 142.8 billion. Adjusted net profit for the full year increased by 16.5% year-over-year to RMB 20.6 billion, with an adjusted net margin of 14.5%. As we scale AI investments, we continue to deliver steady improvements in the group's overall profitability. Our AI capabilities have become a core engine driving Kuaishou's long-term growth.

Meanwhile, as disclosed in the results announcement given the company's business performance, the Board has recommended the payment of a final dividend of HKD 0.69 per share for the year ended December 31, 2025, amounting to approximately HKD 3 billion in total. This reflects our confidence in company's long-term growth prospects and solid financial position as well as our unwavering commitment to enhancing shareholders' value ensuring the benefits of the company's strong cash flow generation.

We are sincerely grateful for our investors to continue to support quite a steady growth. It would not have been possible without the trust and support of our shareholders. Looking ahead, by staying closely aligned with the business development and market conditions, we'll flexibly evaluate and continue advancing diversified shareholder returns, including share repurchases and dividend distributions to deliver the fruits of our growth to all our shareholders.

Next, I will walk through the details and progress of our major business segment in Q4 2025. First, our AI strategy and the progress of our large video generation model, Kling AI. Kling AI remained committed to its core vision of empowering everyone to craft competing stories with AI aiming to become the premier inclusive, efficient video regeneration infrastructure for the AI era, while driving continuous breakthroughs in model capability, product experience and monetization. In Q4 2025, Kling AI accelerated rollout of multiple model upgrades across several iterations. We launched the Kling01, the world's first unified and multimodal video model developed on the multimodal visual language architecture, Kling01 transcends traditional [indiscernible] video generation models by integrating multimodal text video image and subject increasing a single generative managing engine. Kling01's unified architecture enables end-to-end content creation within 1 model system, allowing users to envision systematically from generation to editing and refinement without switching tools. We also released the Kling Video 2.6 model, which incorporates simultaneous audio visual generation capabilities. The model can generate a complete video containing natural voiceover, sound effects and ambient audio in single process, enhancing creative efficiency across the AI video creation flow.

Kling Video 2.6 also introduced a motion control feature that enables users to replicate a specific movement from uploaded videos or from the online motion library. By pairing this with the character reference image, users can generate character specific videos with the frame level precision in both body movements and facial expressions.

In February 2026, we launched the Kling AI 3.0 model series developed under on all-in-one product framework, Kling 3.0, supports full multimodal input and output, spanning text images, audio and video, integrating video understanding, generation and editing within a single streamlined AI workflow. This modes unifying multiple tasks within a native multimodal architecture, enable more complex narrative logic, automated story boarding and precise shot control while maintaining strong prompt adherence. Kling AI's innovations in foundational models and product features have paved the way for what is spread commercial applications across professional creative sectors, including marketing, e-commerce, film and television, short plays, animation and gaming. These capabilities have supported a stronger adoption among professional creators and enterprise clients globally, earning the model's widespread acclaim and accelerating their monetization.

In Q4 '25, Kling AI achieved revenue of RMB 314 million. Notably in December 2025, Kling AI's monthly revenue exceeded USD 20 million, corresponding to an ARR of USD 214 million. At the same time, Kling AI's motion control feature gained significant traction across major global social media platforms, driving widespread discussion and organic distribution. This momentum brought in Kling AI's reach beyond professional creators to a broader mainstream user base.

In Q4, '25, we continue to deepen the impact of large AI models to empower our content and our commercial ecosystems while driving further quality and efficiency improvements or organizational infrastructure. In terms of strengthening the foundation of our content ecosystem, our proprietary multimodal large language model, Kwai Keye-671 billion model has demonstrated strong video comprehension capabilities. Meanwhile, we upgraded our short video and live streaming content understanding in the system and launched a TechNext, our next-generation teching system, which enables more accurate content understanding, driving higher app usage time per user and the retention rate.

In content recommendation, we iterated our end-to-end generator recommendation large model with the launch of OneRec-V2, continuously enhancing the precision of the recommendations. For online marketing services, we further optimized our end-to-end generative recommendation technology by deeply integrating multidimensional business data, we enhanced model performance and improved the precision of online marketing material recommendations. For intelligent bidding technology, we developed a unified bidding large model built on multi-scenario and multi-objective data. Together, our generated recommendation large models and intelligent bidding models drove roughly 5% of growth in Domestic Online marketing services revenue in Q4 '25. While reducing the cost of generating online marketing materials, AIGC technology also unlocked additional budgets from our online marketing clients. In Q4, the total spending from online marketing services driven by AIGC marketing materials was nearly RMB 4 billion.

For e-commerce business scenarios, during Q4, we further iterated our end-to-end generative retrieval architecture OneSearch. We introduced editable structured Semantic identifier tailored to the e-commerce business, enhancing sematic understanding for mid- to long-tail search query. This drove a nearly 3% increase in search order volume in shopping mall in Q4. In addition, we expanded the application of end-to-end regenerative recommendation technology from pan-shelf-based e-commerce to content driven scenarios such as livestreaming rooms and short videos, propelling GMV growth in all e-commerce scenarios. For live streaming business scenarios, we further refined the AI Universe gift customization feature to deliver better interactivity, reach our dynamic presentation, more refined visual aesthetics, significantly increasing users' willingness to send virtual gifts.

To drive the organization efficiency, we have completed the upgrade of our intelligent coding tools, our self-developed AI programming tool CodeFlicker has evolved from a coding assistant to an AI engineer with more engineers adopting the agent-based coding model and the generation rate of new code has roughly risen over -- to over 40%. Moreover, our AI advancements are underpinned by our investments, and we're going to optimization in computing power infrastructure.

Building on the success of our self-operated in-house self-built data center, we are steadily advancing the construction of our new computing power center to continuously elevate server and bandwidth operating efficiency. Second, user growth and content ecosystem. In Q4 '25, average DAUs on the Kuaishou app reached 408 million, and MAUs reached 741 million with average daily times spent per DAU on the Kuaishou app was 126 minutes. We're committed to building a vibrant community with the distinctive quality Kuaishou characteristics, continuously strengthening high-quality user growth, differentiated premium content supply, traffic mechanism optimization and interactive scenario development to achieve a healthy, sustainable expansion in both the user scale and traffic to drive the high-quality user growth that we refine user acquisition strategies across channels to continue to optimize the user segments and improve the retention rates. We also leveraged AI technology to enhance push strategies, including resulting in a higher open rate for Kuaishou app. In addition, we introduced innovative user engagement retention initiatives that are consistently improved ROI.

Harnessing our established capabilities and content operations, we supported the growth of benchmark creators like Xinyu the Ostrich Lady and continue to create and cultivate high quality top-tier content IPs with the distinctive Kuaishou characteristics, rural culture and entertainment activities, exemplified by the Village Gateway Mini Stage in able to call rural residents to transition from passive viewers to active on-stage participants, featuring diverse content ranging from intangible cultural heritage performances to agricultural technology demonstrations. These initiatives enriched the rural culture life and provided a new channel fo showcasing rural culture. We produced the 6th anniversary concert for Teens in Times, which garnered over 680 million live streaming views. Leveraging live streaming, interactive features and AI-powered creative content, we crafted a shared youthful memory that fosters a mutual bond between the fans and idols. We optimized our traffic mix of increased traffic exposure for top-tier original content, fostering a virtual cycle between content creation and consumption. In Q4, the number of high-quality content uploads increased more than 15% year-over-year. To further develop engagement scenarios, we continued to innovate private messaging engagement features, driving year-over-year increase of nearly 3 percentage points in daily average penetration rate of private messages among users with mutual followers during the quarter.

Third, online marketing services. In Q4, revenues from online marketing services to reach RMB 23.6 billion, up 14.5% year-over-year. The accelerated integration and innovative application AI across diverse online marketing service scenarios, not only empowered our ecosystem partners, but also injected a new growth momentum into our online marketing services business.

In Q4 '25 within lifestyle service sector, where clients primarily operate under lead-based model, we have the clients to reach users more efficiently and achieve the higher user conversion rates by upgrading our private messaging products and optimizing our algorithms at the same time by continuously expanding into more industries and acquiring new clients. We broadened our online marketing client base and generated incremental marketing placements. In addition, as the lifestyle service actor clients are predominantly small and medium-sized business, we leveraged AIGC tools to enhance their ability to produce market materials. These enhancements for the barriers for marketing placement and drove further growth in online marketing spending.

In Q4, content consumption sector, led by short plays, comic-style short plays, mini games along with the application sector were the key growth revenue driver for the non-e-commerce online marketing services. In the content consumption sector, short plays continue to sustain solid growth by optimizing marketing materials exposure format. So we increased the marketing spending in short play vertical meanwhile, empowered by the deep integration of AI technologies. Comic style short plays advanced rapidly through continuously comprehensive supporting programs and rolling out the comic style short play AI agent, we further expanded high-quality and diverse content supply to capture emerging growth opportunities in the sector. Moreover, rising market budgets from clients across the AI application vertical, we leveraged our insights into industry placement pace and market trends to consistently optimize resource allocation and commercial efficiency, effectively channeling and capturing marketing placement and spending from AI application clients.

In Q4, for online marketing products, we continued to upgrade offerings including our UAX placement solutions, the AIGC marketing material solutions, live streaming digital human solutions and digital employee solutions. These enhancements helped to lower various marketing placements, improved client placement experience and drive further growth in online marketing spending. Specifically during the quarter, UAX developed a periodic delivery and account level smart replacement product. These upgrades enable clients to extend managed campaign cycles and alert system management from the app unit level to account levels, thereby improving overall delivery efficiency, raising the selling floor campaign scale and providing more stable cost performance for our clients.

In Q4, penetration rate of our UAX placement solutions accounted for nearly 80% of the non-e-commerce marketing spending and its penetration rate among active users exceeded at 90%. For e-commerce marketing services following our consolidation of e-commerce business and related online marketing team made September last year to advance traffic synergy, we established our closed-loop capabilities and pricing traffic, transaction, online marketing conversion and merchant services. This was designed to align our platform's overall revenue growth with merchant mix refinement, enabling e-commerce merchant in GPM and CPM for marketing services to improve in tandem in Q4.

In first half of 2025, we essentially completed capability refinement of our omni platform marketing solution. In the second half, we focused on addressing differentiated scenario needs across diverse customer segments, effectively increasing incremental GMV generated for e-commerce merchants across omni-domain scenarios and enhancing business stability.

In Q4, our omni platform market inclusions accounted for even greater share of our total e-commerce marketing spending, rising further to 75%. Our omni platform product promotion achieved full coverage across products and scenarios, becoming the primary placement offering for our e-commerce marketing services. Our fully managed the auto placement and product combo for small and medium-sized merchants gained broader adoption and recognition, driving a significant increase in spending by these customers.

In Q4, by continuously optimizing our pan-shelf-based e-commerce scenarios and strengthening the synergy of omni domain supply and aligned distribution, our e-commerce marketing services revenue pan-shelf-based scenarios increased rapidly year-over-year.

Fourth, our e-commerce business. In Q4 '25, our e-commerce GMV grew 12.9% year-over-year to RMB 521.8 billion, building on the systematic omni domain operations category for their integrated pathway between public domain, traffic conversion and private domain asset accumulation, unlocking a new growth engine for merchants and supporting their stable, sustainable operational development across diverse scenarios.

During Q4, we continue to empower merchants, strengthen their private domains and operational efficiency, broadening a variety of supply as a result, repeat purchase frequency of active e-commerce merchant users further increased year-over-year. Meanwhile, by enhancing the operations of our key product categories, anymore precisely identifying the needs of our core user bases, we drove continued growth in ARPPU.

In Q4 2025, we mobilized the combined strength of service provider agencies and industrial zones to broaden our e-commerce supply, guided by a full life cycle framework. For new merchant development, we deepened our cost reductions and efficiency enhancement, stepped up incubation programs for new merchants, strengthened support for merchants from industrial zones and for the optimized business environment. Collectively, these measures bring force to merchants operational stability, empowered both new merchants in a small and medium-sized merchants to grow and enhance long-term predictability, sustainability of merchant operations during Q4. Both newly onboarding merchants and newly onboarded active merchants growing year-over-year and quarter-over-quarter, driving our active merchant base to another record high, up 7.3% year-over-year.

Furthermore, in Q4, we launched the Voyage Initiative focusing on in-depth partnerships with the top tier brands in diverse sectors through a coordinated resource empowerment and initiative aimed at a pioneer new model of mutually reinforcing growth for both the platform and the brand. At the end of December, we began to capture early benefits from our high-quality product and content supply as well as merchant mix optimization.

In terms of our live streaming scenario development, the Pop-Up Follower Red Envelopes initiative, which was launched in Q3 to drive targeted follow growth, achieving a meaningful result. By increasing the streaming frequency of streamers with over 10,000 followers, the program drove a 12.7% year-over-year increase in the number of average daily active streamers hosting live sessions with over 10,000 followers, further reinforcing virtuous cycle follower growth and transaction performance in Q4.

Through coordinated operations with agencies and leading to organizations, we expanded our KOL supply to further empower KOLs, we advanced our platform endorsed product offerings, which are trusted by both merchants and KOLs building on this foundation, our KOL Blockbuster Initiative focus on high-demand product categories, highlighting our platform's strong order aggregation capabilities and driving greater KOL participation and distribution. The penetration of KOL within our distribution pool continued to improve with a number of active KOLs more than doubling year-over-year, supported by our platform endorsed product offerings, mid-tier to small and medium-sized KOLs were able to overcome product selection challenges and with platform traffic support, they achieved meaningful leaps in operational scale.

In Q4, our omni domain operations ecosystem, including pan-shelf-based e-commerce and short videos, continue to demonstrate steady and resilient development. In Q4, the contribution of pan-shelf-based e-commerce GMV to total e-commerce GMV remained broadly stable quarter-over-quarter. We continue to expand our supply scale driving sustaining year-over-year and quarter-over-quarter increases in average daily active merchants for pan-shelf-based e-commerce. Super Links and the official channel for platform recommended products continue to strengthen its role as a core operational tool for shelf-based offerings, which achieved a record growth during the quarter. In Q4, Super Links penetration rate and pan-shelf-based e-commerce product cards reached 19.1%. We also encouraged merchants to expand omni domain operations by leveraging our marketing hosting tools. We guided merchants in content-based scenarios towards shelf-based operations significantly increasing the penetration rate of active merchants using our marketing hosting tools quarter-over-quarter.

During Q4, we further advanced our short-video e-commerce content supply, prioritizing refined merchant-centric operations. By continuously leveraging the synergy between short videos and live streaming, we enriched our high-quality content supply and optimized funnel efficiency. These efforts led for a significant growth in short video e-commerce GMV, which continued to outpace overall e-commerce GMV growth.

In Q4 '25, we deepened AI integration across e-commerce scenarios delivering tangible efficiency gains for merchants while supporting their growth. The broader rollout of OneRec, OneSearch and other large language model technologies across the e-commerce scenarios continue to generate incremental value. powered by e-commerce knowledge graph and leveraging large models' world knowledge and reasoning capabilities, we strengthened our foundational understanding of products, videos and users. This enabled a more accurate long-term user-interest modeling, improved recommendation diversity and drove higher revisit and repurchase behavior. E-commerce content new generation capabilities have also advanced during the fourth quarter. Features such as live streaming highlights and AI-assisted content creation further strengthened merchants across scenario operating capabilities, propelling step change growth in both content output and GMV. To improve operating efficiency, we launched an AI-powered order analysis feature in Q4, helping merchants identify abnormal orders more effectively, reduce pre-shipment refund rates.

Next, regarding our live streaming business. In Q4, live streaming revenue was RMB 9.7 billion. We remain focused on fostering healthy live streaming ecosystem during the quarter, oriented towards high-quality, value-driven content and reinforcing the platform's community-centric core. For live streaming supply, we continue to intensify in professional operations of our core competitive categories, including group live streaming and multi-host live streaming, while strengthening coordinated development across multiple categories. This enriched our live streaming content operations portfolio and drove us to develop improvements on the supply side, better serving users diversified preferences. Our Grand Stage deepened integration between online and offline scenarios supporting the incubation of distinctive streamers on our platform while increasing user engagement.

On the product side powered by Kling AI video generation capabilities, our AI universe gives a series with customizable special effects, enhanced interactive feature experience, dynamic motion rendering and visual aesthetics. As of the end of the fourth quarter, the number of cumulative AI Universe gift creations succeeded 1 million. In addition, we expanded the application of the AI capabilities in our live streaming rooms, empowering streamers with AI Interaction Assistant and AI Digital Avatar Solutions to improve streamers' service efficiency.

In Q4, our live streaming+ model extended the boundaries of the live streaming ecosystem while also unlocking additional commercial value. Through refined operations, our Ideal Housing and Kwai Hire business deliver both quality improvement and efficient gains.

In Q4, the average monthly number of Ideal Housing paying clients increased by over 40% year-over-year.

Finally, our overseas business progress. In Q4, we remain firmly committed to our high-value growth strategy, supporting a virtuous business cycle across our overseas business. Despite a complex market dynamics, we achieved a steady growth in overseas business. On the traffic front, while improving customer acquisition efficiency and optimizing our user growth structure, we strengthened the user mind share for the Kuaishou community by expanding the supply of content with a distinctive Kuaishou characteristics, further broadening our core user base. Brazil, our key markets of our overseas development, maintained stable DAUs and time spent per DAU. For online marketing services, we captured the industry opportunity to expand brand presence in Brazil, growing our client base across diverse industries. In addition, we upgraded our products and solutions and actively exploring the new content-driven marketing scenarios, including short videos to improve client performance visibility and unlock new growth momentum supporting our client's long-term development. Our e-commerce business in Brazil achieved a steady year-over-year growth in GMV transaction scale and order volume in Q4, supported by AIGC driven improvement in e-commerce content and quality and operational efficiency and aided by more refiner logistic cost to management, our overseas profitability improved significantly.

Looking back over the past year despite multiple challenges, we anchored our core AI-first strategy, leveraging our profound technological expertise, a thriving diverse content ecosystem and continuously enhanced infrastructure and commercial footprint. We collaborated with ecosystem partners to drive systematic growth. Looking ahead, although challenges will intensify, we remain steadfastly guided by our user needs. We're deeply cultivated the building of a one inclusive and a universally accessible digital community, while continuously deepening the seamless integration of AI technologies across our business. This empowers our merchants and marketing clients to effectively elevate their operational productivity. Staying true to our long-term vision, we will deliver a superior user experiences, build broader platform for our partners and create a more sustainable value for our shareholders, collectively unlocking new growth opportunities in the AI era. That concludes my prepared remarks.

Next, our CFO, Bing will review the company's financial data for the fourth quarter and full year 2025.

[Interpreted] Thank you, Yixiao, and hello, everyone. Looking back to the past year, we significantly progressed our AI strategy and achieved remarkable results, leveraging our advanced AI capabilities. We strengthened Kuaishou's content and commercial ecosystems, delivering high-quality growth across both our operational and financial metrics. We continue to refine our user growth and retention strategies, resulting in an average DAUs reaching 410 million for the full year. At the same time, we deepened the application of AI large model across multiple business scenarios delivering superior experience for our users, creators and business partners while further improving our operational efficiency.

For the full year of 2025, total revenue grew 12.5% year-over-year to RMB 142.8 billion. Adjusted net profit reached RMB 20.6 billion, up 16.5% year-over-year with an adjusted net margin of 14.5%. Importantly, we achieved this growth while continuing to scale our investments in AI, making steady improvements to the group's overall profitability throughout the year.

Now let's take a closer look at our Q4 financial performance. Our total revenue grew 11.8% year-over-year to RMB 39.6 billion in Q4. The increase was mainly driven by growth across normal marketing services, e-commerce and Kling AI. Online marketing services revenue increased 14.5% to RMB 23.6 billion in Q4 from RMB 20.6 billion in the same period last year. The growth was primarily driven by AI-powered upgrades to our online marketing product solutions which improved the conversion efficiency and grow higher spend from our marketing clients. Revenue from other services, including e-commerce and Kling AI business reached RMB 6.3 billion in Q4, up 28% from RMB 4.9 billion in the same period last year. The increase was mainly driven by growth in e-commerce GMV, which boosted our e-commerce commission income. And by the continued expansion of our Kling AI business by continuously refining Kling AI's financial models and developing more innovative features, we have expanded this to a range of applications for professional creators and driven new breakthrough in commercialization. In Q4, our live streaming revenue was RMB 9.7 billion. We continue fostering a rich healthy live streaming ecosystem. At the same time, we refined operations across our core categories, providing users with a more diverse high-quality content, leveraging the end powered product innovation. We also drove greater user engagement through high-quality live streaming content. Cost of revenues increased 9.2% year-over-year to RMB 17.7 billion in Q4, accounting for 44.9% of total revenue. The increase was mainly due to higher revenue sharing costs and related taxes in line with our revenue growth. In Q4, our gross profit grew 14.1% year-over-year to RMB 21.8 billion. Gross profit margin was 55.1%, up 1.1 percentage points year-over-year.

Turning to expenses in Q4. Selling and marketing expenses were RMB 11.4 billion compared with RMB 11.3 billion in the same period last year. Selling and marketing expenses declined to 28.8% of total revenue, down from 32% in Q4 last year, reflecting the stronger effectiveness of our sales and marketing. R&D expenses increased 20.1% year-over-year to RMB 4.1 billion, accounting for 10.5% of total revenue. Increase was really due to higher employee benefit expenses, including share-based compensation expenses and increased investments in AI. Administrative expenses was -- were RMB 930 million compared with RMB 8.7 million in the same period last year. And administrative expenses accounted for 2.4% of total revenue, largely flat year-over-year. Group level net profit for Q4 was RMB 5.2 billion. Group level adjusted net of profit rose 16.2% year-over-year to RMB 5.5 billion with an adjusted net margin of 13.8%. Our balance sheet remains robust. Cash and cash equivalent, time deposit financial assets and restricted cash totaled RMB 104.9 billion as of December 31, 2025. Net cash generated from operating activities in Q4 was RMB 7.3 billion. Additionally, we actively delivered on our commitment to shareholder returns based on the market conditions. As of December 31, we had repurchased approximately HKD 3.12 billion or around 56.78 million shares, representing about 1.32 percent of our total shares outstanding for 20.

Next, I'll provide a quick overview of our financial performance for the full year. For the full year of 2025, our group's total revenue reached RMB 142.8 billion, up 12.5% year-over-year. This includes online marketing services revenue of RMB 81.5 billion, which rose 12.5% year-over-year. Revenue from our online -- our live streaming business increased by 5.5% year-over-year to RMB 39.1 billion. Revenue from other services, including our e-commerce business, totaled RMB 22.2 billion, an increase of 27.6% year-over-year. Gross profit margin expanded by 0.4 percentage points year-over-year to 55% in 2025. Our adjusted net profit for the full year of 2025 was RMB 20.6 billion, up 16.5% year-over-year with an adjusted net margin of 14.5%.

Looking ahead, we will continue to prioritize the user needs and we remain committed to investing in AI, leveraging our leading AI capabilities. We will drive further innovation across Kuaishou's content and commercial ecosystems, maintaining our core competitive edge in the rapidly evolving market and delivering high-quality and sustainable long-term growth for the company.

Here concludes our prepared remarks. Now we can open for Q&A.

[Interpreted] [Operator Instructions] The first question comes from Lincoln Kong from Goldman Sachs.

[Foreign Language] Congrats on the solid fourth quarter results. My question is about Kling AI. So we have seen an accelerating pace for various video generation models across the industry, including CDAS 2.0 launching recently. So what's the impact for the overall industry and to Kling itself. And therefore 2026, what are the strategy or the plans for Kling in terms of our model capability, product upgrade as well as monetization?

[Interpreted] Thank you for the question. As we mentioned before, large video generation models are highly complex, both the input and output modalities are open-ended, which allows for considerable flexibility in technical pathways and product strategies, leaving significant room for innovation. At this stage, we believe video generation technologies and products are so far from maturity, but especially from diverse players in the ecosystem can help exonerate industry advancement and better meet user needs. Recent accelerated updates to large video generation models, including CDAS 2.0 and others have brought positive momentum to the industry. While lowering the threshold for everyday users to create content, they also have increased the penetration of AI video generation across a wider range of applications scenarios, effectively expanding the overall market. CDAS 2.0 adopts the multimodal input architecture, which aligns with the Kling01 model we released in December last year, underscoring our revisionary early positioning in multiple iterations centered on multimodal capabilities. Kling AI continues to maintain globally leading position in both model and product capabilities. Kling AI was ranked among the top video generation models by artificial analysis.ai with exceptional benchmark scores.

Regarding character consistency and controllability, fiscal realism and stability in complex scenarios, including AI 3.0 model series demonstrate stronger performance reinforcing Kling AI's differentiated advantages among professional creators and enterprise clients.

Kling AI played a key role in the production of virtual singing and visual effects in the recent hit drama supports into cloud shares produced by film and TV. It delivered high quality and commercial-grade content while significantly reducing production costs. The partnership is a primary example of Kling AI's commercial value in top-tier film and television production. It validates our focus on film and television production scenarios, as the live strategic direction. In terms of revenue, Kling AI maintained a strong month-over-month growth throughout the year, reaching an annualized revenue run rate or ARR of over USD 300 million in January. Based on what we are seeing now, we are confident that Kling AI's revenue in 2026 will more than double.

Regarding Kling AI's model iteration over the past year, we have consistently evolved in the unified native multimodal path. When we launched the Kling AI 2.0, we introduced the concept of multimodal visual language or MVL which enables creative expression by combining multiple modalities and addresses the limitations of pure text interactions. With the release of the Kling01 large model in December 2025, we advanced the MVL interaction architecture even more, enabling multimodal inputs across text, image and video. Around the same time, we launched our Kling 2.6 model for simultaneous audio visual generation, multimodal product capabilities. In February this year, we launched the Kling AI 3.0 model series, developed under an all-in-one product framework and this series towards full multimodal input and output within a single model.

Looking ahead, we plan to expand the many modalities in our models to further enhance controllability and video generation, including modality for motion and facial expressions. We will also focus on addressing the configuration and consistency challenges of complex scenarios. Meanwhile, on the product front, we will keep advancing our AI agent capabilities to enable fully automated end-to-end content creation. The goal is to empower our models to automatically plan storyboards based on user needs, ensure consistency across characters and scenarios and simultaneously generate well-aligned audio and visual design lighting, visual term and camera movement.

Overall, Kling AI remains committed with its vision of empowering everyone to craft [indiscernible] stories with AI. We will continuously refine our model and product capabilities, sustaining Kling AI's global leadership in technology, product and commercial monetization.

[Interpreted] The next question comes from Daniel Chen of JPMorgan.

[Interpreted] So my question is related to the AI investment strategy. So besides the multimodal and video generation area which related to Kling AI, where do -- what are the other segments that management thinks are worse, more investment in the future?

[Interpreted] Thank you for the question. Regarding the direction of our AI investments, beyond the multimodal video generation domains, we will continue to invest in the research and development of an application of large models across our content and commercial ecosystem scenarios such as large generative recommendation models and large multimodal understanding models.

In terms of the large generative recommendation models, over the past few quarters, we have seen significant potential for generative models in recommendation scenarios and we will continue to explore in this direction. For example, in our online marketing recommendation system, we are exploring deeper integrations between generative models and our ranking architecture, shifting from single request optimization to long-term value modeling.

In terms of the model capabilities, by leveraging our lens to introduce a stronger logic reasoning, inference and broader world knowledge, we are attempting to break the data feedback loop problem found in traditional recommendation systems. Concurrently, we are building a native, highly concurrent and scalable next-generation ranking architecture for large recommendation models. Through system design and foundational engineering upgrades, we aim to ensure that the expansion of computing power and parameter scale translate into performance improvements.

In the direction of the large multimodal understanding models, our proprietary multimodal foundational large language KwaiYii empowers Kuaishou's content understanding infrastructure. In core short video and live streaming scenarios, KwaiYii performs video parsing and user behavior inference effectively driving improvements in the user time spend and retention metrics.

Moving forward, we'll upgrade our AI capabilities from one-way passive Q&A to a long-term contextual understanding and a complex task processing further expanded the application to core monetization scenarios such as online marketing services and e-commerce and develop practical intelligence assistance with multimodal interaction capabilities to drive greater commercial value.

In 2026, we will also explore the application of agent capabilities across other various business areas. For example, in online marketing scenarios, we are developing an AI agent that delivers automated marketing placement for our e-commerce merchants. This covers the entire workflow from intelligent product selection, creative editing and AI-generated materials, smart bidding and dynamic pricing and customer support and post placement data analysis, lowering the threshold for clients to place marketing materials and improving placement of performance and cost stability. Additionally, we will also explore sales AI agents for lead focused sectors, helping clients improve lead conversion efficiency and reduce customer acquisition costs. In e-commerce scenarios, we will improve the user search experience through the development of a search and recommendation agent, driving higher user search-based order volumes. We will also explore agent-based automated computing power optimization. We will further share our progress on these fronts with you at appropriate time.

Finally, we will also advance the construction of the new computing power centers. Computing power is the core foundation and underlying support of our AI development, meeting the company's demand for R&D iteration, model training and inference enhancement. We have integrated the construction of computing centers into our strategic planning, aiming to solidify the computing foundation for AI development. By reserving expansion space to accommodate long-term needs, these centers will deeply support core tasks such as AI algorithm optimization and large model training, empowering our AI innovation with a robust computing foundation.

In summary, we will continue to deeply calibrate the R&D of core technologies and their implementation across multiple scenarios. With firm computing investments and a deep AI talent pipeline, we will empower our content ecosystem and realize continuous growth in commercial value of our ecosystem partners. Thank you.

[Interpreted] The next question comes from Thomas Chong of Jefferies.

[Interpreted] On e-commerce, how should we think about the growth strategies in 2026? How should we think about the trend this year and the growth opportunities?

[Interpreted] Thanks for the question. Our broad focus for 2026 remains on returning to the essence of Kuaishou's content-based e-commerce and on maximizing our strengths as the content platform. Our growth strategy spans across 3 areas. First, we'll focus on the supply side reforms to continuously refine supply and consistently offer good products. As mentioned earlier, in Q4 2025, we launched a Voyage Initiative to provide a targeted support for top-tier brands. It's designed to help them quickly achieve strong start and sustained growth within the Kuaishou ecosystem. In 2026, we will also invest in more resources on the supply side, primarily across 4 areas: merchant traffic, product, operations and services. Our focus will extend beyond brands to include merchants in the key industrial zones. We already identified 100 priority industrial zones and we are actively managing them. Meanwhile, we are working closely with our e-commerce industry team, small- and medium-sized merchant team and service providers to empower our new merchants. As the e-commerce market matures and macroeconomic dynamics remain challenging, the relationship between platforms and the brand is being reshaped. Platforms are evolving from single transaction roles to collaborative partners that grow alongside merchants. As we empower merchants more effectively, we also plan to refine the platforms, the supply ecosystem and provide users with a wider variety of products.

Second, we will continuously improve in paying user acquisition and penetration. Currently, there's still significant growth potential in a number of e-commerce monthly average paying users. In 2026, we'll focus on exploring and better understanding users' interest in e-commerce content. We will also optimize our traffic strategies and leverage effective subsidy mechanisms and across scenario synergies to boost paying user conversion and scaled growth within superior products.

Third, we will further optimize resource integration. This quarter, we have seen some preliminary success in implementing traffic synergy. Moving forward, we aim to deepen the integration between e-commerce and commercialization, enhanced coupon synergy, improved subsidy efficiency and optimize the overall resource allocation and investment efficiency.

We believe that the inherent conversion advantages of content-based e-commerce will continue to drive its penetration in the online retail market. Over the past year, categories such as men's and sportswear and fresh food grew rapidly. We expect these verticals to maintain their growth momentum this year. As we just mentioned about ramping supply in 2026 and leveraging intelligent operational tools to help merchants reduce costs and improve efficiency while offering them a clear, more certain path for growth. We expect even more structural growth opportunities in content-based e-commerce. In 2026, we expect Kuaishou e-commerce to achieve steady, high-quality growth.

Under the promise of high-quality growth, we will further strengthen our e-commerce monetization capabilities and deepen the foundational capabilities of our omni platform marketing solution and smart placement products. We expect that the core incremental growth for e-commerce marketing service revenue will come from 3 areas. First, scale expansion. By focusing on key verticals and broadening industry supply, we aim to scale monetization through e-commerce marketing services in categories such as cosmetic sports and outdoors, fresh food and home furnishings.

Second, efficiency improvement. We will actively bring in more brand clients, optimize client composition and integrate resources to drive aligned growth for both GMV and marketing spending. Women's apparel and health care will be a particular focus where we can enhance monetization efficiency.

Third, sector expansion. We will expand into sectors where we lag our competitors, such as maternal and children pad and consumer electronics, identifying clear opportunities in driving breakthroughs. In addition, we are also looking to continuously improve monetization efficiency in shelf-based e-commerce. By expanding omni domain product supply, we can increase merchants' marketing budgets on product cards.

In short, guided by the e-commerce growth strategy and monetization road map we outlined for 2026, we will take a steady, disciplined approach. We will focus on the right long-term initiatives while leveraging our content platform strengths to better meet the consumption needs of our users.

[Interpreted] The next question comes from Felix Liu Lee of UBS.

[Interpreted] Sorry, just let me finish the English translation in addition to e-commerce, what are the main advertisement industry growth opportunities in 2026? And how do we plan to capture these opportunities?

[Interpreted] Thank you for your question. From a sectoral perspective, we believe the key growth opportunities this year will mainly come from 3 sectors: lifestyle service, comic-style short plays and AI applications.

In the lifestyle service sector, we have seen a continued shift in user behavior from traditional search platforms toward content platforms. Short videos and live streaming formats are more effective at building user trust, reducing decision-making friction and improving conversion efficiency. In addition, the lifestyle service sector continues to deepen its online penetration for merchants in sectors like agriculture, materials, education and automotive. Online platforms are gradually becoming key channels for our marketing and customer acquisition and the platform level will continue to upgrade our products to help merchants reach their potential customers more effectively, while enhancing our in-platform interaction capabilities to improve conversion rates. Moreover, clients in the lifestyle service sector are mostly small and medium-sized merchants that require strong customer service and operational support. Through our AIGC marketing material solutions, we help small- and medium-sized merchants generate marketing materials at a low cost. In addition, our AI-powered customer service solutions to enable merchants to provide 24/7 online support.

In the content construction sector, as AI technology significantly improves content production efficiency and lowers production costs, the emerging content format, comic style short plays is advancing rapidly. As a top-tier player, Kuaishou has the dual advantage of our mature short-play ecosystem and the world-leading video generation model by deeply integrating content and technology, where building a comic-style short-play ecosystem that spans the entire value chain from tools and content to distribution. Additionally, we introduced a full-scale comic-style short-play support program covering computing power, traffic and other resources. These continuously enrich the platform's comic-style short-play content supply and boost online marketing spending in this category. Since the second half of last year, the total spending from online marketing services driven by Kuaishou's comic-style short-play has increased rapidly. In March this year, peak daily marketing spending exceeded RMB 15 million.

The AI application sector is also what we view as another key growth driver for 2026. As the AI technology continues to advance and new applications emerge, the industry remains in a rapid growth phase. We expect depending on the relevant sectors to continue growing significantly in 2026. Against this backdrop, we will strengthen and refine our operations for our clients, continuously optimize short and long-term retention metrics, helping clients maximize the user lifetime value, all of which will prompt AI application clients to increase both their marketing spending scale and commitment on our platform.

In summary, for 2026, harnessing our product upgrade content ecosystem development and refine our operations for our clients in priority sectors. We aim to better capture incremental growth opportunities in the lifestyle service sector, comic-style short-play and AI applications, driving solid growth in our online marketing services revenue.

Operator, last question, please.

[Interpreted] The next question comes from Yuan Liao from Citic.

[Interpreted] You have repeatedly mentioned the construction of computing power centers. So my question is, could management share your plan scale of AI-related CapEx in 2026? And the key area of your investment? So how will this CapEx investment affect your overall profit margin?

[Interpreted] Thanks for the question. As Yixiao said, over the past year, we have fully deepened our AI strategy, our multimodal large leader generation model, Kling AI has achieved impressive results in technology and advancement, product duration and commercial monetization. At the same time, AI has delivered strong value empowering our content and commercial ecosystems, reinforcing our commitment and confidence to continue investing in AI.

In 2026, we expected the group's total CapEx to reach approximately RMB 26 billion, an increase of about RMB 11 billion compared with 2025. This covers computing resources for Kling AI's large models and other foundational models as well as routine server procurements such as off-line data storage and processing and investments in data and computing center infrastructure. The increase in CapEx for Kling AI's large models is partly due to higher inference computing needs from our expanding user base and revenue scale. It also takes into consideration of our major Kling AI model upgrades scheduled for the year, which require additional investment in training computing power. With advancement of model iteration in the future, we will also flexibly allocate computing resources between inference and training to maximize the efficiency of computing resource utilization.

I would also like to emphasize that we are highly focused on cash flow management and maintaining ample cash reserves in 2025 despite approximately RMB 15 billion in CapEx, the group delivered nearly RMB 12 billion in free cash inflow for the year. For 2026, even with increased CapEx, we aim to continue maintaining positive free cash flow at the group level for the full year. We believe that every investment today will efficiently translate into future profit drivers. As we stay focused on long-term technology investments, we will maintain disciplined financial management and ample cash reserves. Our robust balance sheet will empower the group's sustainable high-quality growth in the AI era. Thank you.

That concludes the Q&A session. Thank you, operator.

[Foreign Language]

Thank you, operator. [Foreign Language]

Thank you once again for joining us today. If you have any further questions, please contact our capital market and IR team at any time. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to the Kuaishou Technology Third Quarter 2025 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided with for management's prepared remarks. [Operator Instructions]

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

Thank you, operator. Good evening, and good morning to everyone. Welcome to Kuaishou Technology Third Quarter 2025 Financial Results Conference Call. Joining us today are Mr. Cheng Yixiao, Co-Founder, Chairman and CEO; and Mr. Jin Bing, our CFO.

Before we start, please note 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 important information about this call, including forward-looking statements, please refer to the company's public information or third quarter 2025 results announcement ended at September 30, 2025, issued earlier today.

During today's call, management will also discuss certain non-IFRS measures. These are provided for additional information and should not replace IFRS-based financial results. For a definition of non-IFRS financial measures and reconciliation of IFRS to non-IFRS financial results and related risk factors, please refer to the third quarter 2025 results announcement.

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

Lastly, unless otherwise stated, all currency units mentioned are in RMB.

Now I'll turn the call over to Yixiao.

Hello, everyone. Welcome to Kuaishou's Third Quarter 2025 Earnings Conference Call. In Q3, we continued to advance our AI strategy, expanding scenario-based AI applications and innovative use cases across our business. These efforts created a tangible business value across all business scenarios, strengthened the quality and efficiency for our organizational infrastructure and fueled strong operational financial results.

Average DAUs on the Kuaishou App surpassed 416 million in Q3, marking the third consecutive quarter of record highs. Total revenue for Q3 rose by 14.2% year-over-year to RMB 35.6 billion. Revenue from our core commercial business, online marketing services and other services, primarily e-commerce, increased by 19.2% year-over-year. Adjusted net profit rose 26.3% year-over-year to RMB 5 billion with an adjusted net margin of 14%. We achieved a year-over-year growth in the group's overall profitability while continuing to invest strategically in AI, a catalyst for unlocking deeper value across our content and business ecosystems.

First, our AI strategy and the progress of our large video generation model, Kling AI. We continue to refine the foundation models behind Kling AI, developing new features to meet creators' diverse needs and build a one-stop creative productivity platform that empowers everyone to tell captivating stories with AI. In Q3, we launched Kling Lab and upgraded the start-and-end-frames function and introduced digital human solution. Notably, at the end of September, we released the Kling AI 2.5 model, achieving substantial advances in prompt adherence, dynamic effects, style consistency and visual aesthetics. Just 10 days after launch, the model was simultaneously ranked as the world's #1 text-to-video and image-to-video model by Artificial Analysis.ai independent AI benchmarking platform.

While maintaining its leading content generation performance, the new model also integrates continuous engineering innovations that lower video inference costs, reducing creators' per video-generation expense by almost 30% and further strengthening Kling Al's cost-efficiency advantages. Kling AI's innovations in foundational models and product features have provided creators with higher-quality video generation solutions, establishing a foundation for broader adoption across professional creative fields such as marketing, e-commerce, film and television, short plays, animation and gaming.

As Kling AI continues to expand its use cases, it has made breakthroughs in monetization and revenue growth. In Q3, revenue from Kling AI exceeded RMB 300 million. Kling AI is committed to empowering global creators and building a premium ecosystem. In September, we launched the Kling AI NextGen Creative Contest, which received over 4,600 entries from 122 countries and regions worldwide, covering diverse fields such as history, science fiction and animation.

Outstanding works were screened at international film festivals, including Cannes, Tokyo and Busan for the integrating AI-powered film and TV works with traditional film and TV industries.

In Q3, we achieved strong results from integrating AI into diverse internal and external use cases. On business empowerment, large AI models have now been integrated across all of Kuaishou's major business scenarios, driving incremental value across our ecosystem. We iterated our end-to-end generative recommendation large model, OneRec and extended beyond short video recommendations to additional recommendation scenarios such as online marketing services and e-commerce shopping mall. This expansion has generated meaningful incremental benefits.

In Q3, large AI models demonstrated notable effects, especially in online marketing services. We pioneered a generative reinforcement learning-based bidding model that integrates sequence modeling with goal optimization. This innovation transformed advertising bidding from a single-step decision-making to long-term strategic planning, significantly enhancing bidding capabilities and ROI for clients, especially for small and medium-sized, one.

Meanwhile, we explored using end-to-end generative recommendation in online marketing service scenarios through OneRec. Tailored to the characteristics of online marketing services, we introduced the client marketing expression and marketing commercial value perception mechanism to achieve bidirectional matching between users' interest and clients' demands, enhancing personalization and matching efficiency.

Large AI model technologies, especially OneRec drove roughly 4% to 5% growth in domestic online marketing services revenue in Q3. In terms of online marketing material generation, Kling AI's large model has significantly reduced video production costs for clients. Meanwhile, advanced digital human technology has also opened up new operational scenarios in live streaming for both online marketing clients and e-commerce merchants. Consequently, the total spending from online marketing services driven by AIGC marketing materials exceeded RMB 3 billion in Q3.

For e-commerce, we launched OneSearch, an end-to-end generative retrieval architecture. It enables more precise product matching and optimizes the user experience, driving nearly 5% growth in shopping mall search order volume. The adoption of OneRec in e-commerce also contributed to high single-digit GMV growth in the shopping mall feed in Q3.

For entertainment live streaming, we leveraged Kling AI to introduce the AI Universe gift customization feature, which generates highly personalized avatar-based personal gifts, increasing both user engagement and willingness to pay.

Second, user growth and content ecosystem. In Q3, average DAUs on the Kuaishou App reached 416 million and MAUs reached 731 million. This is the third consecutive quarter that average DAUs reached a record high. The sustained and steady traffic growth reflects Kuaishou's community's unique appeal to users. By refining our user growth strategies, offering distinctive and diverse content, optimizing our traffic allocation mechanism and enhancing community engagement, we continued to reinforce Kuaishou's identity as a heartwarming, diversified, informative and engaging online community.

In Q3, average daily time spent per DAU on the Kuaishou App was 134.1 minutes, while total user time spent rose by 3.6% year-over-year. Our refined user growth strategies leveraged smart marketing material placement to enhance acquisition efficiency, lowering the acquisition cost per new user year-over-year. In traffic allocation, by modeling users' long-term user interaction patterns, we improved both user satisfaction and retention.

We also continue to upgrade users sharing experience within private messaging and iterated on social interaction features. As a result, the daily average penetration rate of private messages among users with mutual followers increased by more than 3 percentage points year-over-year. We also elevated the user product experience through a series of device-level intelligent optimizations.

In content operations, we partnered with the Beijing Radio and Television Station to launch the 2025 Kuaishou Super Summer Gala, where celebrities and everyday users come together and celebrate. The live stream session attracted a peak over 5.4 million concurrent users. To cater to young audiences, we hosted an online concert hosting -- featuring TNT, which drew 980 million live streaming views.

In the pan-knowledge category, we curated the Liyuan Music Festival Summer Tour series, showcasing offline tours across diverse traditional art forms such as Qinqiang and also Shanbei Storytelling. By bringing these live performances to audiences, we helped benchmark creators like An Wan achieve cumulative accretive breakthroughs and gain recognition.

Third, online marketing services. In Q3, revenue from our online marketing services reached RMB 20.1 billion, up 14% year-over-year. With the growth rate accelerating quarter-over-quarter, we continuously iterated and upgraded our online marketing placement products with AI models. Drawing our unique traffic dynamics, we cater to the needs of more marketing customers through our smart placement capabilities, achieving more precise targeting and higher conversion rates. This drove strong year-over-year growth in both external and closed-loop marketing services revenue.

In Q3, our UAX solutions accounted for over 70% of external marketing spending. Ongoing innovations, iterations, particularly with our generative and reinforcement learning-based bidding model and generative recommendation large model further improved marketing recommendation efficiency and enhanced management of marketing variety and value. The combination of our 3 key AIGC commercialization tools, AIGC short video, digital human and digital employee has empowered our customers with an end-to-end AI solution covering marketing material creation, live streaming operations and user engagement.

In Q3, for closed-loop e-commerce marketing services, we upgraded the product and content optimization capabilities of our omni domain platform marketing solution to maintain a steady supply of premium marketing materials. By integrating multi-content reinvestment and ROI bidding recommendation tools, we helped e-commerce merchants improve traffic and at sales conversions, thereby enhancing their willingness to invest in marketing placement. In Q3, total marketing spending from omni-platform marketing solution accounted for over 65% of our closed-loop marketing spending.

Additionally, we established a bidding agent based on AI capability to replace mutual -- manual adjustment decisions, enabling more consistent conversions and unlocking greater economies of scale. On the traffic side, by enhancing the synergies between e-commerce and commercial value, we released more traffic capacity to merchants with long-term operations, helping more brand e-commerce merchants achieve a scaled expansion and stable conversion improvements.

From a scenario perspective, in Q3, closed-loop e-commerce marketing services in pan-shelf-based scenarios also realized a solid growth. We optimized people to goods matching in pan-shelf search, and we used large models to better meet the users' needs and improve efficiency. These efforts increased marketing placement and penetration and drove stronger merchant participation.

In Q3, for the lifestyle service sector, where clients mainly operate on a lead-based model, we upgraded our private messaging products and optimized vertical-oriented products. These improvements helped clients reach users more efficiently and achieve higher user conversion rates across various conversion goals. In lifestyle services, particularly among our small and medium-sized customers, we improved private messenger response rates with AI-powered customer service. In Q3, we combined our local services with a lead-based marketing business to form our lifestyle service segment, integrating teams, product lines and traffic distribution. This unification strengthens our ability to support merchants pursuing sustainable operations and help build a more diversified collaborative ecosystem with local customers -- merchants.

These 3 -- the content consumption sector led by short plays was another key revenue driver for our external marketing services in Q3. We continued to enhance content supply and product innovation across short plays, mini-games and novels, while capturing incremental growth opportunities from the rapid rise of comic-style short plays, further expanding external marketing services revenue. Comic-style short plays combine features of comics, short plays and audio dramas, typically featuring vertical-screen episodes to 1 to 3 minutes long. This new genre has recently gained widespread traction among the broader market.

Kling AI has significantly lowered the barrier to creating comic-style short plays while elevating overall content quality. In addition, through a mix of marketing placement, revenue sharing, IAA and IAP models, we created multiple monetization pathways for high-quality short-play content, expanding reach on both the supply and demand side.

Fourth, our e-commerce business, in Q3, our e-commerce GMV grew 15.2% year-over-year to RMB 385 billion. Through a mix of merchant incentive programs, omni-domains traffic support and intelligent tool empowerment, we helped merchants build omni-domain operations ecosystems, continuously elevating user experience and driving high-quality supply and demand growth. To support the merchants sustainable growth, we encourage them to adopt an efficient conversion path that integrates public and private domains using public domains to acquire customers and private domains to strengthen retention.

In Q3, the mix of our e-commerce monthly average paying users showed healthy trends. Active e-commerce users repeat purchase frequency increased year-over-year and user stickiness continued to improve. In Q3, in e-commerce supply, building on our platform's traffic and content-based e-commerce advantages, we continued to attract new merchants organically and onboarded merchants through a diverse channels. We introduced a range of incentives to lower onboarding costs and entry barriers for new merchants. In addition, we continue to launch initiatives to empower new merchants to navigate early growth stages and ramp up operations more efficiently, driven by a growing number of small and medium-sized merchants together with our targeted support for high-quality existing merchants, our average monthly active merchant base continued to grow. We also broadened the range of products, number of Level 3 product categories per store among our average monthly active merchants increasing by nearly 30% year-over-year.

To empower merchants and KOLs in Q3, we launched a series of initiatives to unlock greater value creation within their private domains supporting their ability to build a dual growth engine of exceptional content and superior products. We launched the Pop-Up Follower rewards product to accelerate follower growth and empower merchants and KOLs from traffic generation to follow conversion ultimately to sales. With a stronger control over merchandise selection and supply, we expanded our product portfolio of high-quality platform native offerings.

We focused on the premium brands through our KOL blockbuster initiative, leveraging the traffic pool of gift products to spotlight, dedicated live streaming sessions for [ treasury ]brands, supported by improved KOL product matching, KOL targeted vertical outreach and platform incentives. We expanded the KOL engagement, enhanced brand performance and empowered KOLs to address product selection and assortment expansion challenges.

In Q3, the average daily number of active merchandise items increased by over 30% year-over-year. We provided guaranteed resources such as traffic support and product supply to onboard small and medium-sized KOLs and established long-term growth mechanisms. These efforts strengthened the KOL content ecosystem in Q3, driving a 14.8% year-over-year increase in the number of average daily active streamers hosting live sessions with over 10,000 followers.

In Q3, in terms of operating across diverse scenarios, pan-shelfed e-commerce GMV continued to outpace overall GMV growth, contributing over 32% of total e-commerce GMV. We continued to enhance our infrastructure and supply ecosystem, driving a 13% year-over-year increase in average daily active merchants for pan-shelf-based e-commerce. We built on the diverse engagement features, strategy tools from Q2, including Super Links, the official channel of platform recommended product. These tools helped merchants quickly boost product exposure and sales conversion, cultivating user mind share for our shopping mall.

The marketing host tool we introduced for merchants and content-based scenarios effectively lowered their operational barriers and drove steady quarter-over-quarter growth in merchant adoption. In Q3, we maximized the synergies between short videos and live streaming. We helped merchants integrate traffic from content-based scenarios through a seamless loop from product recommendations via short videos to rapid conversion in live streaming rooms and back to user engagement via short videos. This strategy steadily expanded the merchants customer base, supported by more short videos with embedded shopping links and our customized funnels, short video e-commerce GMV maintained a healthy growth.

In Q3, in terms of integrating AI into our e-commerce business, we focus on empowering merchants across our e-commerce business chain with 3 core areas: AIGC content production, merchant efficiency improvement and product matching efficiency optimization. Our AIGC capabilities for generating and optimizing materials continue to deliver strong results, helping merchants improved conversion efficiency across both image and video formats in diverse scenarios. Penetration of the smart live streaming highlights and AI live streaming scenarios also steadily increased.

Concurrently, our AI product management assistant is providing comprehensive omni-scenario support, it helps merchants reduce costs, increase efficiency and strengthen their operational capabilities while also operating high -- generating high-quality data. On the matching front, our explainable recommendations powered by our e-commerce knowledge graph, predict users' potential and long-term interest. This boosts conversion rates and also strengthen the user trust and stickiness with our recommendations. We believe these AI capabilities will ultimately power growth flywheel of data infrastructure, precise matching and merchant efficiency empowerment driving the healthy and sustainable development of our e-commerce ecosystem.

Next, regarding our live-streaming business. Q3 live-streaming revenue grew by 2.5% year-over-year to RMB 9.6 billion. Growth was driven by high-quality content, expanding live-streaming scenarios and AI-powered product innovations. For live-streaming supply, the healthy development of our talent agency ecosystem provided robust support pillar. By end of Q3, our partner talent agencies had increased by more than 17% and talent agency managed streamers grew by over 20% both year-over-year. We focus on categories such as group live-streaming by supporting premium benchmark groups guiding content optimizations, we achieved high-quality development and steady revenue growth.

Innovative AIGC applications also injected momentum into our business growth, leveraging AI, Kling AI capabilities, in late September, we rolled out the AI Universe gift series with a customizable special effect platform-wide, effectively diversifying options for personalized interactions in live streaming rooms. On launch day alone, users paid to create and send over 100,000 personalized virtual gifts.

In Q3, for entertainment live-streaming operations, we launched a Super Grand Stage 2.0 organized as 5 regional contests nationwide to further integrate online live-streaming and offline scenarios. Targeting the summer season and demand from young users, we hosted the Summer Gaming Music Festival in Chengdu, an offline event blended gaming, music and interactive experiences deepening our partnerships with game developers. The event attracted 672 million live stream views and over 50,000 participants. Moreover, our live streaming+ strategy continued to empower traditional industries, further validating its commercial value.

In Q3, average daily number of users submitting resumes on Kwai Hire increased by over 20% year-over-year. In Ideal Housing, average monthly number of paying clients increased by over 90% year-over-year.

Finally, our overseas business. In Q3, we continued to strengthen our foothold in overseas markets, focusing on high-quality growth. On the traffic front, we optimized customer acquisition efficiency to precisely reach high-value demographics. By prioritizing operations for core category creators, we fostered stronger connections between our high-quality characteristic content and our core user base. Brazil, our core international market maintained stable DAUs while reducing user acquisition cost year-over-year delivering consistent year-over-year growth in average daily time spent per DAU.

For online marketing services, we bolstered business resilience, diversified our marketing client base across industries. Through an updated product capabilities and placement strategies, we improved overall conversion efficiency across our marketing funnel, unlocking more on monetization potential for diverse user groups and earning sustained client recommendation. Concurrently, our e-commerce business in Brazil improved both in subsidy and operating efficiency. While maintaining disciplined ROI management, we achieved a healthy year-over-year growth in GMV transaction scale and order volume in Q3.

Looking ahead to Q4 and into 2026, we will continue investing in our AI strategy, exploring efficient gates that empower users, video creators, marketing clients and e-commerce merchants through Kling AI and other large AI model technology. At the same time, guided by our development philosophy and AI strategy, we will comprehensively transform and upgrade our organization structure, talent deployment, product design and features. We will persistently uphold and concentrate Kuaishou's technology innovation ethos, maintaining and deepening our long-term competitive advantages in the era of AI. That concludes my prepared remarks.

Next, our CFO, Bing, will review the company's financial update for Q3 2025.

Thank you, Yixiao, and hello, everyone. In Q3, we continue to strengthen our core advantages, leveraging our large AI model capabilities, we further empowered our content and business ecosystems. With our rich content supply and optimized omni-domain operations ecosystem, we continuously enhanced the experience for users and creators while helping merchants and KOLs improve their operational capabilities and support sustainable growth.

During the quarter, we achieved solid operational and financial results, with the total revenue increasing 14.2% year-over-year to RMB 35.6 billion. This included a 19.2% year-over-year increase in revenue from our core commercial business, which includes our online marketing services and other services, primarily e-commerce. With our steady revenue growth and improved operating efficiency, we improved our overall profitability. Operating profit increased 69.9% year-over-year to RMB 5.3 billion. Adjusted net profit grew 26.3% year-over-year to RMB 5 billion with a healthy adjusted net margin of 14%.

Now let's take a closer look. Our total revenue grew 14.2% year-over-year to RMB 35.6 billion in Q3. The increase was mainly driven by growth across each of our business, including online marketing services, live streaming, e-commerce and Kling AI. In Q3, online marketing services revenue increased 14% to RMB 20.1 billion from RMB 17.6 billion in the same period last year. The growth was primarily attributable to the use of AI technology to continuously upgrade our online marketing product solutions that improved the conversion efficiency, which drove higher client spending from our marketing clients.

Revenue from other services, including e-commerce and Kling AI businesses reached RMB 5.9 billion in Q3, up 41.3% from RMB 4.2 billion in the same period last year. The increase was mainly driven by growth in e-commerce GMV, which boosted e-commerce commission income as well as the expansion of our Kling AI business. We have continuously refined Kling AI's foundation models and developed more innovative features. Its application coverage has expanded, driving further breakthroughs in commercialization.

In Q3, our live-streaming revenue was RMB 9.6 billion, up 2.5% from RMB 9.3 billion in the same period last year. We consistently cultivating high-quality content, expanded live streaming scenarios and leveraged AI-empowered product innovations to build a diverse and healthy live-streaming ecosystem. These steps drove greater user engagement with high-quality live-streaming content.

Cost of revenues increased 13.4% year-over-year in Q3 to RMB 16.1 billion, accounting for 45.3% of total revenue. The increase was mainly due to increased revenue sharing costs and related taxes in line with our revenue growth, partially offset by decreases in depreciation of property and equipment and right-of-use of assets and amortization of intangible assets. In Q3, our gross profit grew 14.9% year-over-year to RMB 19.4 billion. Gross profit margin was 54.7%, up 0.4 percentage points year-over-year.

Moving to expenses. Selling and marketing expenses were RMB 10.4 billion, roughly flat year-over-year and accounted for 29.3% of total revenue, down from 33.3% in Q3 last year, reflecting our refined efforts and improved operating efficiency. R&D expenses were RMB 3.7 billion, up 17.7% year-over-year, accounting for 10.3% of total revenue. The increase was mainly due to higher employee benefit expenses, including share-based compensation expenses and increased investments in AI.

Administrative expenses decreased 13.6% year-over-year to RMB 688 million or 1.9% of total revenue, mainly due to lower employee benefit expenses, including share-based compensation expenses. Group level operating profit for Q3 increased 69.9% year-over-year to RMB 5.3 billion. Net profit for Q3 was RMB 4.5 billion. Adjusted net profit rose 26.3% year-over-year to RMB 5 billion with an adjusted net margin of 14%.

Our balance sheet is quite robust with cash and cash equivalents, time deposits, restricted cash and wealth management products totaling RMB 106.6 billion as of September 30, 2025. We generated a positive operating net cash flow of RMB 7.7 billion in Q3. Additionally, we actively delivered on our commitment to shareholder returns based on marketing conditions.

As of September 30, we had repurchased an aggregate of approximately HKD 2.17 billion (sic) [ HKD 2.07 billion ] or around 42.25 million shares, which accounted for about 0.98% of our total shares outstanding for 2025. In addition, we declared a special dividend of HKD 2 billion in Q3, reflecting our confidence in Kuaishou's long-term growth prospects and a solid financial position.

Looking ahead, we'll continue to prioritize user needs and execute our AI strategy to empower all of our business stars while exploring more diversified growth avenues. These initiatives will reinforce our competitive edge in ever-changing market and enable us to create long-term value for our users, partners and shareholders.

That concludes our prepared remarks. Now let's move into the Q&A session.

[Interpreted] [Operator Instructions] The first question comes from Felix Liu of UBS.

[Interpreted] Congratulations on the very strong third quarter results. My question is on Kling AI. How does -- the market is very focused on the competitive landscape of video GenAI. Could management share more color on Kling's competition strategy from here? And where do you plan to develop and drive evolution in Kling from here? After the launch of Sora 2, how do we see the development of the overall video GenAI industry? And do you anticipate more opportunities on the 2C side of video GenAI.

[Interpreted] Thank you for your question. The surge of entrants from tech giants to start-ups reflects just how attractive and promising the video generation market is. That said, we believe video generation is still far from maturity in both product and technology. With a growing number of market participants, we expect accelerated innovation across the industry, meeting more user needs, penetrating a wider range of use cases and pushing the market to expand even more.

As for Kling AI's positioning and competitive strategy, we have zeroed in on key goal to empower everyone to craft captivating stories with AI. Our first industry focus is film and television, where we are dedicating our resources to deepening our tech and product capabilities. Video models like large language models are essentially evolving toward world models. We see video models as the key technology for world models. Applications can extend far beyond film and TV production. They can reach interactive experiences and data generation for embedded intelligence. While we will continue sharpening our model and product capabilities across diverse application scenarios, our strategic focus right now is squarely set on AI-powered film and TV production.

With this goal in mind, we have been advancing our technology leadership and product creativity, and we'll continue on this path. Video models differ from language models in 2 ways. First, they are highly complex. While language models are relatively simple at the macro level, video models consist of a wide range of different modules. This complexity also gives us significant room for technological breakthroughs and innovation.

Second, video generation is an open-ended domain, inputs can be text, pictures or motion trajectories and outputs can be diverse content including images, video and sound. These 2 characteristics [indiscernible] allow greater flexibility in technology and product choices, which in turn provide significant room for technology and products innovation. Kling AI aims to bring together product creativity, inside users capability to push technological boundaries. For example, in April, we [ revealed ] our concept of interaction called MVL. Building on this, we are continuously upgrading our foundation model and product capabilities, exploring more ML model products.

Alongside the [Technical Difficulty] breakthrough in our product capabilities, we have also wide range of operational initiatives to foster -- creative mechanism and a thriving content creation ecosystem. For example, our Kling AI Future Partner program integrates key resources from both Kuaishou and Kling AI to precisely match creators with high-value commercialization opportunities across diverse scenarios.

The program has supported well-known brands such as the NBA and [ Mochi Ice Cream and Tea ]. We also recently leveraged the Kling AI NextGen Creative Contest, helping Kling AI creators gain exposure at international film festivals in Busan, Cannes and Tokyo, further expanding Kling AI's global brand visibility and influence.

As for the latest buzz around Sora 2, it has made technology breakthroughs on multiple fronts and integrated closely with social interaction features. This has really accelerated the rollout of consumer-level AI applications and strengthen our confidence in the future commercial scalability of video generation. For us, our main focus is still on professional creators, improving their experience and willingness to pay. At the same time, we are actively exploring consumer-facing use cases. When the time is right, we will advance the productization of Kling AI's technology, embedding social features to speed up consumer level applications and commercialization.

[Interpreted] The next question comes from Lincoln Kong from Goldman Sachs.

[Interpreted] Congrats on a very solid result. So my question is about the AI-powered business. So on top of Kling AI and the OneRec just we've been talking about for online marketing services, could management elaborate more on AI large language model to empower our Kuaishou content ecosystem and how to improve our operational efficiency front?

[Interpreted] Thank you for your question. 2025 is widely regarded as AI's first year advancing into deep applications. Throughout the year, AI technologies represented by a multi-model generation and AI agents have consistently moved toward richer and more efficient applications that are more aligned with user needs. This marks a systematic step toward unlocking AI's industrial scale value. Against this backdrop, we have progressively developed a comprehensive AI technology and application system centered on user needs and rooted in our existing business scenarios. It is designed to accelerate AI adoption to empower our content and business ecosystems as well as our organizational infrastructure.

In terms of empowering our content ecosystem, AI has now been fully integrated across Kuaishou's business operations from content and user understanding to content generation and recommendations. First, in understanding content and users, our proprietary multi-model large language model, KwaiYii has demonstrated strong video comprehension capabilities. Based on this model, we upgraded our short video and live streaming content understanding system and launched [ Tag Next ], our next-generation tagging system, which enables more accurate and comprehensive content understanding. [ Tag Next ] is now being applied across key scenarios, including early-stage content management, content diversity expansion and the new interest discovery, driving higher average app usage time per user.

Second, in content generation, Kling AI continues to empower mass creators. We have witnessed a significant increase in the video views volume of AIGC short video content on the platform. Third, in content recommendation, the important -- the most important area, we further expanded the boundaries of generative recommendation systems by upgrading our end-to-end generative recommendation large model, OneRec. We launched the next-generation OneRec-Think large model, integrating LLM inference capabilities and combining conversational inference, personalized recommendations and real-time feedback mechanisms into one single model system. This further enhances recommendation accuracy and strengthens user trust.

Beyond business empowerment, AI technology has played a major role in improving the efficiency of our organizational infrastructure. Our proprietary AI coding tool, CodeFlicker has become a core intelligent development tool used daily by our engineers at a high frequency. It supports scenarios such as automated unit testing generation, intelligent code review and smart testing cases generation. Currently, nearly 30% of the new code at Kuaishou is generated using CodeFlicker.

In terms of content review, we have applied large AI models across diverse scenarios, including user profiling, content identification and comment analysis. By leveraging COT reasoning and reinforcement learning technologies, we have enhanced our review models capabilities. Currently, over 99% of the content on our platform is reviewed by AI, greatly reducing related costs while improving the efficiency and quality of content review.

In addition, our customer service team is leveraging AI technology to prescreen and route user inquiries, provide intelligent assistance and accumulate knowledge. As a result, over 70% of user inquiries are now directly handled and resolved by our AI-powered customer service system, significantly improving efficiency. Overall, a resilient self-reinforcing cycle of AI innovation, AI application monetization and revenue growth is taking shape at Kuaishou. In the long run, we believe this full spectrum AI application ecosystem will further strengthen Kuaishou's market resilience and unlock new growth momentum.

[Interpreted] The next question comes from Thomas Chong of Jefferies.

My question is about online marketing services. We have seen our online marketing revenue accelerating this quarter. Can management provide more details on what we have done from the perspective of traffic, industry sectors as well as product offering?

[Interpreted] Thank you for your question. In Q3, online marketing services revenue grew by 14% year-over-year, accelerating from the previous quarter with domestic online marketing services revenue increasing by over 16%. From the traffic perspective, advertising revenue was driven by both increased marketing material impressions and higher CPM. The growth in impressions was supported by overall traffic growth and by more high-quality native marketing content, which helped increase ad load. The rise in CPM was driven by our use of AI technology such as generative reinforcement learning bidding and end-to-end generative recommendation models, which improved the matching between user interest and advertiser needs, enhancing the personalization and matching efficiency of online marketing material recommendations.

Looking ahead at external marketing services industry-wise, lifestyle services, where clients mainly rely on lead-based operations and content consumption represented by short plays and mini games were the standout sectors this quarter. In lifestyle services, we upgraded our private messaging product and optimized the subsequent conversion passes across industry verticals, helping clients to reach users more efficiently and improve sales conversions.

Since most of our lifestyle services clients are small and medium-sized businesses, they benefit more from products like our AI customer service, UAX placement solutions and AIGC marketing material generation tools. In content consumption industries, deep AI empowerment drove rapid growth in comic style short plays. We captured this opportunity and used Kling AI to play an active role in upstream content creation.

In terms of our closed-loop marketing services, we continue to iterate our omni-platform marketing solution, helping e-commerce merchants achieve more incremental exposure and conversion. By leveraging intelligent bidding agents and generative large models, we enabled 24/7 stable bidding and more fully uncovered user interest, which helped expand merchants placement budgets. We also strengthened our ability to capture and interpret users' full range interest across both content-based and shelf-based scenarios, effectively increasing the number of converted users and their purchase frequency while better meeting users' e-commerce consumption needs on Kuaishou.

From a product perspective, we upgraded multiple products, including our UAX placement solutions, AIGC marketing material generation tools, live streaming digital human solutions and our virtual employee. These enhancements lowered the marketing threshold and improved conversion rates, driving more online marketing services spending. Specifically in Q3, our UAX placement solutions added fixed period steady placement feature. The new feature allows clients to set their requirements for marketing materials and pricing for a specific ad placement period, while the system automatically handles intelligent infrastructure, smart dynamic fine-tuning and smart creative content production.

This enhanced the stability of the ad placement period had helped our online marketing clients achieve more consistent placement performances at a more predictable cost. In Q3, our UAX placement solutions accounted for over 70% of the external marketing spending. Our AIGC marketing material generation tool enabled the clients to generate short video materials rapidly at a low cost and in batches with a 10% to 20% higher material conversion efficiency than the industry average.

Live-streaming digital human solutions allowed our clients to run 24/7 live streams even without streamers or venues. Our virtual employee reached a human level customer service performance in conversational accuracy, efficiency and safety, engaging naturally across scenarios like private messaging and common, improving conversion efficiency for our clients.

Looking ahead, we'll continue to expand our industry client base and further deepen AI applications, empowering clients to achieve more efficient, high-quality marketing performances and better ad placements.

[Interpreted] The next question comes from Daniel Chen from JPMorgan.

[Interpreted] So my question is related to e-commerce. So what's the latest progress and the performance of our Double 11 promotion in December quarter? And if we look at next 1 to 2 years, what's the incremental -- what's the key growth driver for our e-commerce business, especially the live streaming e-commerce? How should we look at the future growth potential?

[Interpreted] Thanks for the question. Regarding e-commerce, while consumption has shown some resilient recovery this year, overall user spending has remained cautious and rational. During the Double 11 Sales Promotion, we delivered results in line with our expectations with standout performances in categories such as jewelry and gemstones, tea, wine and wellness, apparel, including men's and women's apparel, sportswear and family matching outfits and fresh food.

For this year's Double 11 Sales Promotion, we invested over RMB 18 billion in platform traffic incentives, combined with RMB 2 billion in user subsidies and RMB 1 billion in merchandise subsidies. Together, these effectively enhanced the merchant sales conversions and buyer engagement, increasing the number of merchants achieving GMV of over RMB 10 million by double digits year-over-year.

We implemented a tiered support programs tailored to business type and merchant and KOL size, fostering a thriving e-commerce ecosystem and motivating them to achieve better growth across omni-domain scenarios. For shelf-based e-commerce scenarios, we focus on supporting core products where we launched a range of initiatives, including the Big Brand, Big Subsidy and Super Links.

During this year's Double 11 Sales Promotion, the number of single products achieving over RMB 1 million GMV via the Big Brand, Big Subsidy initiative surged by over 77% year-over-year. Our users' mind share for shopping on Kuaishou improved during the sales promotion with search-generated e-commerce GMV growing by over 33% year-over-year.

For our future e-commerce growth drivers, in the short to medium term, we will prioritize boosting user purchase frequency followed by increasing ARPPU. Our key initiatives to raise purchase frequency are: first, we will continue to empower streamers to strengthen their private domains and operational efficiency, broadening the variety of streamers and product categories that users pay for.

Second, we will maximize cross-scenario synergy. Lower purchase barriers in short video scenarios will allow us to expand our [Technical Difficulty]. More as we progressively reinforce users' shopping mindset on Kuaishou, our pan-shelf-based e-commerce will better capture users' repeat purchases needs with greater certainty.

We will further enhance the operations of our key product categories and more precisely identify our core user AI [Technical Difficulty] users' trust in the platform having steady ARPPU growth. There is still significant room to grow our e-commerce monthly average paying users, but we view this as a long-term outcome metric rather than a short-term performance metric. In the near to medium term, we will mainly focus on the healthy structure of our e-commerce monthly average paying users.

Regarding the growth potential of live streaming e-commerce, as a common platform, live streaming e-commerce and trust-based e-commerce have always been the backbone of our e-commerce business and most critical operational scenarios. We believe that live streaming e-commerce with its built-in conversion advantages will continue to gain ground in the online retail market and it stills hold substantial room for structural growth in the future.

The long-term growth potential lies in creating a healthy ecosystem where merchants can operate sustainably with private domain follower retention, acting as a key moat given their high user stickiness and repeat purchase behavior. Accordingly, we helped merchants better integrate their public and private domain strategies through a range of initiatives acquiring traffic in the public domain while retaining followers and converting them into customers and driving repeat purchases in private domains.

That said, exceptional content and superior products remain the essential foundation of our ecosystem. Therefore, we'll continue to onboard merchants and creators, expanding the pipeline for high-quality supply while continuously broadening the range of merchandise. In parallel, we will strengthen long-term collaboration with both merchants and KOLs by offering them extensive products through our distribution pool and providing traffic support for standout content. We will also equip the merchant and KOLs with our intelligent operational tools, empowering them with AI to improve efficiency and performance. A robust business ecosystem in turn, will incentivize the continuous creation of exceptional content.

Finally, while live streaming e-commerce is the backbone of Kuaishou's e-commerce, we will also encourage merchants to operate across diverse scenarios and strengthen the efficiency of omni-domain synergies. This will facilitate a closer alignment with the user needs and enhance the resilience and stability of Kuaishou's e-commerce ecosystem. Thank you.

[Interpreted] The next question comes from Xueqing Zhang of CICC.

[Interpreted] My question is regarding CapEx and profit margins. With the progress of Kling and other AI drive initiatives, does the company have any updated guidance on the CapEx and AI-related spending plans? Has the full year 2025 profit margin target being adjusted? And given that the industry is significantly increasing CapEx, how is Kuaishou planning the CapEx over the next 1 to 2 years? And what impact will AI investments have on profit margins?

[Interpreted] Thanks for your question. As Yixiao said, this quarter, we achieved strong results by integrating AI technology across a wide range of internal and external application scenarios. AI empowered our business operations and improved the quality and efficiency of our organizational infrastructure. AI technology continues to unlock increasing value across our content and business ecosystems.

At the same time, Kling AI made more solid breakthroughs in commercialization. We now expect Kling AI's full year 2025 revenue to reach USD 140 million, more than double the target we set at the beginning of the year of USD 60 million. Given Kling AI's users' growing demand for video generation models, we have continued to ramp up our investment in computing power for Kling AI. Beyond the incremental investment in inference capacity alongside continuous model iterations, we have recently started to scaling up Kling AI's training computer power to keep Kling AI at the forefront of technology advancement. Including this and CapEx from other AI initiatives, we expect the group's total 2025 CapEx to increase in the mid- to high double digits year-over-year.

Regarding expenses, we have recently stepped up our investments in hiring and retaining AI talent. This portion of expenses remains relatively manageable. And despite the higher AI-related investments, we're confident that our full year adjusted operating margin will continue to improve year-over-year. Our overall improvement in profitability further underscores that AI continues to unlock increasing value across Kuaishou's content and business ecosystems.

Thanks to the better-than-expected progress of Kling and integration AI technology in our businesses, so we [Technical Difficulty] growth plan with a focus on upgrading computing power and technology. This goes beyond supervising costs and expenses builded in our strategy of leveraging leaps in AI to drive greater value. As AI applications continue to expand across scenarios, their potential value will be unlocked. We are confident that we can continue to steadily grow our profits, improving profitability over the next 2 years, and we look forward to sharing our progress along the way. Thank you.

Thank you, operator. That's the end of the Q&A session.

[Foreign Language]

[Interpreted] Thank you once again for joining us today. If you have any further questions, please contact our capital market and IR team at any time. Thank you.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

Good day, ladies and gentlemen. Thank you for standing by. Welcome to Kuaishou Technology Second Quarter and Interim 2025 Financial Results Conference Call. [Operator Instructions] I will now turn the call over to Mr. Matthew Zhao, VP of Capital Markets and IR at Kuaishou Technology.

Thank you, operator. Good evening, and good morning to everyone. Welcome to Kuaishou Technology Second Quarter and Interim 2025 Financial Results Conference Call. Joining us today are Mr. Cheng Yixiao, Co-Founder, Chairman and CEO; Mr. Jim Bing, our CFO.

Before we start, please note 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 doesn't 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 for the second quarter and interim 2025 results announcement ended June 30, 2025, issued earlier today.

During today's call, 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 results and measures and a reconciliation of IFRS to non-IFRS financial results and related risk factors, please refer to our second quarter and interim 2025 results announcement. For today's call, management will use Chinese as the main language. A third-party interpreter will provide simultaneous English interpretation in the prepared remarks session and consecutive interpretation during the Q&A session. Please note that English interpretation is for convenience purposes only. In case of any discrepancy, management statements in the original language will prevail. Lastly, unless otherwise stated, all currency units mentioned are in RMB.

I will now hand the call over to Yixiao.

Hello, everyone. Welcome to Kuaishou's Second Quarter 2025 Earnings Conference Call. In Q2, we built on our relentless pursuit of delivering compelling user experience and our strong technological foundation using large AI models to empower our content and business ecosystems. These efforts created value for both our users and business partners while setting record highs across multiple operational and financial metrics. Notably, average DAUs on the Kuaishou App reached an all-time high of 409 million in Q2, showing steady year-over-year growth.

In Q2, our total revenue rose by 13.1% year-over-year to RMB 35 billion. Adjusted net profit totaled RMB 5.6 billion with a 16% adjusted margin, marking a new high in quarterly profitability. We achieved this remarkable growth while maintaining our commitment to strategic investment in AI even amid macro uncertainties demonstrating our strategic results. It also highlights the resilience of our content and business ecosystems as well as our efficient organizational execution.

As you have seen in our results announcement given the company's business performance, the Board has declared a special dividend of HKD 0.46 per share for the first time since the listing, amounting to approximately HKD 2 billion in total. This reflects our confidence in the company's long-term growth prospects and solid financial position as well as our commitment to continuously enhancing shareholder returns. We are sincerely grateful for our investors' continued support. Quite a steady growth wouldn't have been possible without the trust and support of our shareholders. Looking ahead, we will consider measures such as share repurchases and dividend payments as appropriate to reward our shareholders.

Next, I'd like to elaborate on the progress of our key business segments in Q2. First, our AI strategy and the progress of our large video generation model, Kling AI. For Kling AI, we maintained dedicated to delivering state-of-the-art large video generation model technology and product performance. We launched the Kling AI 2.1 model series in May. The latest iteration boosts the comprehensive quality improvements, including better motion performance, more realistic physical simulation and more acute semantic responsiveness. It offers 2 modes of standard and high quality, providing creators with differentiated video generation solutions. At the end of July, Kling AI also released a Kling app, which integrates unlimited visualization space, intelligent creation assistance and real-time multiuser collaboration. The all-new feature brings creators a seamless and efficient one-stop creation experience.

Kling AI is committed to becoming a one-stop creative engine for creators, empowering everyone to craft captivating stories with AI. Kling AI has assisted consumers and corporate clients in exploring more application scenarios, including advertising and marketing, film, television and short plays, gaming interactions and smart hardware among other areas.

In the short play industry, Kling AI and Kuaishou Astral Short Plays jointly produced the world's first AI-generated anthology series, New World Is Loading. So far, it has racked up almost 200 million cumulative views globally, setting a new benchmark for AI-generated films and television content. These in-depth explorations of Kling AI's application scenarios also led to commercialization growth.

In Q2, revenue from Kling AI surpassed RMB 250 million. Large AI model is also empowering our content and business ecosystem. We launched OneRec, an end-to-end generative recommendation large model that represents a new technological paradigm. By introducing a reward-based preference alignment method and leveraging reinforcement learning, our large model can generatively predict videos and match users' preferences from the video library.

With this architectural advantage, the new large recommendation model significantly improved efficiency of training and inference computing power. The technology is being used for recommending short video and has improved the user time spent and retention rates. For online marketing services, we explored the correlation between users' omni-domain behaviors and marketing service conversion by leveraging role knowledge and inference capabilities of large language models.

The process included a supervised fine-tuning of omni-domain data and optimization of models based on user preferences. These efforts enabled end-to-end prediction of tailored marketing materials, increasing click-through and conversion rates, driving low single-digit growth in online marketing service revenue. In the e-commerce scenarios, we applied multi-model large language models to enhance product information extraction. By leveraging LLM knowledge reasoning, we generated structured description of target users, use cases and user interest, amplifying user product matching efficiency.

Second, user growth and content ecosystem. In Q2, average DAUs on the Kuaishou App reached 409 million and MAUs reached 715 million, increasing by 3.4% and 3.3% year-over-year, respectively. Average DAUs on the Kuaishou App set another new record. The average daily time spent per DAU on the Kuaishou App was 126.8 minutes, while total user time spent rose by 7.5% year-over-year in Q2. The steady growth in our user traffic was attributable to our high-quality user growth strategy and optimized traffic allocation mechanism and more engaging community atmosphere and our differentiated content operating strategy. By staying focused on our high user value growth strategy, we improved ROI by reducing user acquisition costs.

We also refined our traffic allocation to better align commercial content with the user retention, which strengthened both user experience and stickiness. At the same time, we increased traffic exposure for top-tier original content, fostering a virtuous cycle between content creation and consumption. And we upgraded the private messaging experience across various scenarios and expanded innovative social features that have made communications more engaging. As a result, the daily penetration rate of private messengers among users with mutual followers increased by nearly 5 percentage points year-over-year.

Our differentiated vertical operation strategy also further strengthened our connection with the users as we continue to deliver standout content with Kuaishou characteristics. In the Three Rural vertical, we launched the Happy Village Spring Farming Season series activities featuring short views on agriculture technology and knowledge, e-commerce live streaming to promote agricultural materials, tools and products as well as the spring farming grand stage, patent entertainment and events. These activities boosted the interactions between Three Rural creators and interested users with related short video content accumulating 12.7 billion total views.

As national college entrance examination approached, we brought together teachers from schools, education experts and high-quality creators in the pan-knowledge vertical. Through live streaming and short videos, they provided students and their families with practical information before, during and after the exam.

Third, online marketing services. In Q2, revenue from online marketing services reached RMB 19.8 billion, up 12.8% year-over-year with the year-over-year growth rates accelerating from the first quarter. We secured additional budgets from marketing clients across multiple industries with a proactive outreach by optimizing our intelligent marketing product solutions with the large AI models. These improvements lowered the threshold for the clients to place marketing materials and also enhance marketing conversion efficiency, leading to a notable year-over-year increases from both external and closed-loop marketing services.

In Q2, we also upgraded our AIGC marketing material solutions, the newest iteration moves beyond the general capabilities to better align the consumer-specific industry attributes and application scenarios, which further improved the conversion rates for AIGC materials. In Q2, revenue from external marketing services continued to grow, driven by strong demand from the content consumption, local services and automotive industries.

For the content consumption industry, advertising spending in the short place remained high double-digit growth year-over-year. Smart pricing for the in-app purchases and dynamic adjustments of in-app ads promotional events drove this momentum. They improved the users' willingness to pay and increase their time spent, which in turn expanded revenue for our marketing clients. For clients in the local services and automotive industries who mainly rely on lead-based operations, our native private messaging products proved especially effective in reaching users and driving conversion efficiency.

In Q2, we leveraged large language models and sequence modeling for native private messaging between clients and users, which raised the lead conversion rate in terms of intelligent product placement solutions. The penetration rate of our UAX placement solutions continues to rise, making up around 65% of total external marketing spending in Q2.

In Q2, for closed-loop marketing services, we helped e-commerce merchants elevate the efficiency of our omni-domain intelligent operations by refining our product and traffic strategies. We continue to upgrade our omni-platform marketing solution iterating Q2 such as intelligent bidding, supplementary material placement and omni-domain multiproduct marketing to simplify the placement process and enhance the ad placement stability for merchants. In Q2, our omni-platform marketing solutions accounted for an increasing share of total closed-loop marketing spending.

Scenario-wise, revenue from online marketing services related to pan-self-based e-commerce has achieved rapid growth. In addition to continuously introducing high-quality content and merchandise in Q2, we zeroed in optimizing our traffic distribution strategy for pan-shelf-based e-commerce, strengthening the synergies between e-commerce business modeled especially for this pan-shelf-based e-commerce. This refinement lead to simultaneous improvement in the sales of conversion rate of e-commerce merchants and effective cost per mile of our closed-loop marketing services.

Fourth, our e-commerce business. In Q2, e-commerce GMV rose by 17.6% year-over-year to RMB 358.9 billion. We continue to deepen the efficient integration and connection of exceptional content and superior products, further meeting more users' consumption needs and elevating their user experience. As a result, number of e-commerce monthly average paying users continued to grow year-over-year to 134 million in Q2, while the repeat purchase frequency of active e-commerce merchants users also increased year-over-year.

In Q2, our pan-shelf-based e-commerce efforts also further helped merchants to capture new business opportunities for omni-domain solutions. Pan-shelf-based e-commerce GMV continued to outpace overall GMV growth in Q2, accounting for 32% of the total e-commerce GMV. During the 618 Shopping Festival, GMV from the pan-shelf-based e-commerce product cards rose by over 50% and search-induced e-commerce soared by over 140% year-over-year. For new merchants in the pan-shelf-based e-commerce, we further deepened marketing hosted applications. We utilize materials and merchandise information from content-based scenario, helping new merchants to achieve basic operations for one-stop marketing. For existing merchants operating on a larger scale, we offered a big brand, big strategy, marketing event for top-tier high event interest products.

And Super Links, the official channel of product recommended products, leading to a 30% year-over-year increase in average daily active merchants in the shopping mall in Q2. As pan-shelf-based e-commerce expanded rapidly, short video e-commerce GMV grew by over 30% year-over-year, largely due to increasing supply in short videos with embedded shopping links. Growth in short video e-commerce GMV also benefited from enhanced supply quality driven by short videos, blockbuster products from live streaming sessions, which boosted the matching efficiency between targeted demographics and core merchandise.

In Q2, new merchant expansion and optimized scenario development drove the number of active small- and medium-sized merchants to rise further year-over-year. We are deeply committed to increasing incentives and resources for new merchants through the Golden Bounty Initiative, service provider empowerment and traffic support across scenarios. We have helped them quickly adapt to platform and grow their business. These efforts drove a 50% year-over-year increase in the number of newly onboarded merchants in Q2.

We established a product sourcing center to screen high-quality merchandise supplies for merchants and reduce operational threshold. We also developed a task and incentive system aligned with the stages of merchants across tiers covering 4 core scenarios, live streaming, short video, pan-shelf-based e-commerce, KOL distribution, further optimizing the merchant ecosystem.

In Q2, we placed a strong emphasis on achieving long-term synergies with KOLs. We help them enhance their product capabilities by introducing new features that support full growth and reengagement, boosting the operating efficiency in the private domain. We also established stable distribution channels for merchants by building a platform endorsed product. The KOL blockbuster initiative efficiently connected KOLs with exceptional product, while the Treasure Brand Spotlight Initiative strengthened the diversity of the product distribution by introducing more branded merchandise.

In Q2, monthly available merchandise and KOL distribution increased by over 30% year-over-year. We encouraged entertaining KOLs to transition to small and medium-sized KOL, bringing a large number of new and small KOLs into leading KOL teams and organizations and provided them with a tailored incubation path and commercialization models. These steps facilitate rapid growth of new KOLs. Over the mid- to long term, the small- and medium-sized KOLs will become a key growth engine for our ecosystem.

In Q2, incorporated AI capabilities in merchants end-to-end operations, particularly in AIGC content production, smart live streaming and intelligent customer service and integration reduced merchants operating costs on the quantum-based e-commerce platform. Our pan-shelf to advanced AIGC capabilities are fully embedded across our e-commerce content ecosystem. This directly improved product conversion efficiency in various scenarios, including product cards and short videos through the automated generation and optimization of high-quality materials.

Going forward, we aim to use large models to reconstruct connection between customers and merchandise, making a substantial upgrade from meeting immediate demand to predicting potential demand.

Next, our live streaming business. In Q2, live streaming revenue grew by 8% year-over-year to RMB 10 billion as we continue to develop a rich ecosystem and top-tier live streaming content to meet users' diverse needs.

We ramped up our efforts to boost revenue efficiency in our core categories, including group and multi-host live streaming. More specifically, we refine operations and leverage regional attributes with a greater emphasis on combining short videos with streaming. We will also explore AIGC innovation and application live streaming, voice, chat and other real-time interactive scenarios.

By the end of Q2, our partner talent agencies had risen by more than 20%. Talent agency management streamers increased by over 30% year-over-year. On top of that, we announced online and offline live streaming scenarios, providing a broader stage for exceptional live streaming content from [indiscernible] and Tangshan Bubble Dragon in Q2, Grand Stage expanded its reach nationwide, establishing a presence in 57 cities across [indiscernible] provinces, among others. Our live streaming business can deepen its cooperation with game developers by hosting e-commerce events such as CrossFire Mobile Champs, cup events by combining content ecosystems, our advanced sources and user consumption, we provided game developers with end-to-end support from exposure to conversion based on their full life cycle stages and specific needs. Our live streaming+ strategy continued to empower traditional industry.

In Q2, average daily number of users submitting [indiscernible] increased by over 40% year-over-year, and the number of matches grew by over 160% year-over-year. In Ideal Housing, daily lead generation surged by over 60% compared with the same period last year. Finally, in terms of our overseas business and local services process, in Q2, we continue to develop our overseas business at a steady pace. Revenue grew 20% year-over-year to RMB 1.3 billion.

We continue to expand our new users through innovative channels and improved customer acquisition efficiency with the refined operations, strengthening the core user base. As a result, the DAUs in Brazil, one of our core international markets remained stable with consistent growth in average daily time spent per DAU year-over-year.

On the monetization, we actively expanded the industry coverage of advertisers to continually expand product capabilities, maintaining healthy year-over-year growth in online marketing services revenue. For our e-commerce business in Brazil, our end-to-end digital empowerment of local merchant operations enabled content-driven immersive consumption, real-time interaction and rapid conversion driven consistent solid year-over-year and quarter-over-quarter growth in transaction scale and order volume in Q2.

In Q2, GMV for local services increased steadily year-over-year category-wise, we strengthened our cost controls in our in-store dining services and strategically avoided subsidy composition while supporting high ROI product growth in our general in-store business. On the supply side, we continue to improve our core categories and price comparison capabilities, promoting the healthy growth of competitive products and low-priced supplies.

In Q2, the amount of daily average available merchandise leaked by over 55% year-over-year. On the demand side, our city-specific refined operations and elevated user experience, coupled with improved smart subsidy model drove the overall healthy growth of the business. In terms of content, we remain committed to supporting the distribution of high-quality traffic on our platform. Furthermore, recommendation funnels aided by larger models has also propelled increases in video views, efficiency enhancements, local services, short video scenarios. For monetization, we meet users' diverse placement needs by expanding and optimizing advertising products, resulting in almost 120% of year-over-year revenue increases.

In addition, stricter ROI discipline improved both subsidy and operating efficiency, further narrowing the operating loss in our local services and year-over-year and quarterly over quarter. Looking back on the first half of 2025, advanced our AI strategy at a steady pace, accelerating the commercialization process while achieving continuous technological breakthroughs.

Looking ahead to the second half, we will make steadfast investments in AI with a continued commitment to exploring AI technologies value in creating efficiency for creators, marketing clients and e-commerce merchants as well as discovering new commercialization opportunities with greater potential. As we maintain high-quality growth in our existing business, we'll continue to promote the synergies between our content and the business ecosystem, allowing both to flourish. As always, we'll base our operations on our user needs and strive to amplify operational efficiencies for merchants and marketing clients, working with users, creators and partners to jointly create long-term value through long-term sustainable growth. That concludes my prepared remarks.

Now our CFO will review the company's financial update for second quarter of 2025.

Thank you, Yixiao, and hello, everyone. In Q2, despite the challenging external environment, we continue to make breakthrough in both our financial performance and operational metrics by leveraging our industry-leading AI technology, vibrant user ecosystem, increasingly prosperous content and solid diversified business ecosystems.

AI Technology is now deeply integrated across the majority of our business scenarios in turn, bringing new commercial opportunities and showcasing our robust growth momentum. This success in return has reinforced our commitment to long-term and steadfast investment in technology. In Q2, our total revenue increased by 13.1% year-over-year to RMB 35 billion, and adjusted net profit grew by 20.1% year-over-year to RMB 5.6 billion with a margin of 16%, showing our ability to increase profitability. These achievements highlight both the resilience of our business ecosystem and also demonstrate our healthy and sustainable growth potential.

Now let's take a closer look. Our total revenue grew 13.1% year-over-year to RMB 35 billion in Q2. The increase was mainly driven by growth in each of our core businesses, including online marketing services, live streaming and e-commerce and Kling AI. Our marketing services revenue increased by 12.8% to RMB 19.8 billion in Q2 from RMB 17.5 billion in the same period last year. As we continue to leverage our AI capabilities to optimize our intelligent marketing product solutions, we improved the conversion efficiency of marketing materials, which in turn drove higher spending from our online marketing clients.

Revenue from other services, including e-commerce and Kling AI business reached RMB 5.2 billion in Q2, up 25.9% from RMB 4.2 billion in the same period last year. This increase was mainly attributable to growth in e-commerce GMV, which boosted e-commerce commission income as well as Kling AI's continually growing revenue scale. Rapid iterations of Kling AI and expansion into more application scenarios continue to accelerate its monetization.

In Q2, our live streaming revenue was RMB 10 billion, an increase of 8% from RMB 9.3 billion in the same period last year. We further developed specialized verticals to build a diversified live streaming ecosystem. At the same time, we consistently refined the operations of our core categories and deepened the integration of short videos and live streaming, which led to greater user engagement with high-quality live streaming content.

Cost of revenues increased by 12.3% year-over-year in Q2 to RMB 15.5 billion and accounted for 44.3% of total revenue. The increase was mainly due to increased revenue sharing costs and related to taxes in line with our revenue growth, partially offset by decreases in depreciation of property and equipment and right-of-use assets and amortization of intangible assets.

In Q2, gross profit grew by 13.8% year-over-year to RMB 19.5 billion. Gross profit margin was 55.7%, an increase of 0.4 percentage points year-over-year, an increase of 1.1 percentage points sequentially.

Moving to expenses. Selling and marketing expenses increased by 4.6% year-over-year to RMB 10.5 billion, accounting for 30% of total revenue, a drop from 32.4% in Q2 last year. The increase in selling and marketing expenses was mainly due to increased spending on business promotions, including online marketing services and e-commerce business, while the decline as a percentage of total revenue was attributable to our improved operational efficiency, research and development expenses were RMB 3.4 billion, rising by 21.2% year-over-year and accounting for 9.7% of total revenue.

The increase in R&D expenses was mainly due to increased investments in AI. Administrative expenses increased by 13.3% year-over-year to RMB 897 million, accounting for 2.6% of total revenue. The increase in administrative expenses was mainly due to higher employee benefit expenses, including related share-based compensation expenses. Group level net profit for Q2 was RMB 4.9 billion. Group level adjusted net profit rose 20.1% year-over-year to RMB 5.6 billion with an adjusted net margin of 16%.

As the company's profitability and cash management capabilities further improved, our cash and reserves continue to increase with cash and cash equivalents, time deposits, restricted cash and wealth management products totaling RMB 101.9 billion as of June 30, 2025. We generated a positive operating net cash flow of RMB 8.5 billion in Q2. Additionally, we actively delivered on our commitment to shareholder returns based on the market conditions.

As of June 30, we had repurchased an aggregate of approximately HKD 1.9 billion or around 38.8 million shares, which accounted for about 0.9% of our total shares outstanding within year 2025. I'd like to explain the changes we are planning to make in our GMV data disclosure. As we further diversify our e-commerce business model and revenue mix, quarterly GMV is no longer a core indicator of our e-commerce business performance. We began to release quarterly GMV figures after the company went public because we wanted to make it easier for the market to follow Kuaishou's growth trajectory as an upcoming e-commerce service platform.

Now that this year's expected GMV exceeds RMB 1.5 trillion. Our e-commerce business will be driven by a more nuanced combination of factors going forward. These include more diverse e-commerce scenarios, AI-empowered merchant solutions and improved comprehensive experiences for e-commerce users, which cannot be fully captured by the quarterly GMV metrics alone.

As such, beginning in the first quarter of 2026, we will no longer disclose quarterly and yearly GMV separately. Hence, everyone can focus on a more comprehensive set of indicators that can better reflect the long-term value created by the company. This adjustment is aligned with our industry peers' practice and will help investors gain a more accurate understanding of our operational priorities and long-term strategies. We will still disclose GMV data in our third and fourth quarter reports this year and annual report of 2025 as we have been doing to ensure the market has sufficient time to process and adapt to this adjustment.

In summary, looking ahead, we will continue to focus on user needs while remaining committed to investing in AI. We will further build our content and business ecosystem moat, maintaining solid financial performance improvements that drove the company's sustainable profitability and create long-term value for users, partners and shareholders. That concludes our prepared remarks.

Operator, now let's open the call for questions.

[Operator Instructions]

[Interpreted] Your first question comes from Lincoln Kong of Goldman Sachs.

[Interpreted] So my question is about the Kling AI. We have seen Kling AI second quarter, the revenue keep accelerating. Could management elaborate what the major use cases for Kling AI users at the moment? In future, how should we think about the potential breakthrough and upgrade areas? What's the growth strategy for Kling AI in the future?

[Interpreted]

Thanks for the question. Currently, Kling AI's users include both mass creators with an interest in AIGC and professional creators such as pan self-media users, designers and artists, e-commerce/advertising industry professionals and film television production studios. At the moment, Kling AI's major paying users are professional creators.

In terms of application scenarios, AIGC-driven mass creators primarily use Kling AI to produce engaging creative images or videos and share them on social networking or content platforms. Pan self-media users adopt Kling AI to quickly create short video content such as popular size content visualization. They efficiently gain traffic and achieve monetization by taking advertising orders. Designers and artists can leverage Kling AI to inspire creative ideas and explore artistic styles, helping them to create all new artwork. For e-commerce/advertising industry professionals, they use Kling AI to produce high-quality product displays and creating advertising materials at lower cost, significantly lower costs, elevating operating efficiency. As for film and television production studios, they use Kling AI for preproduction concept design, special effects and establishing shots.

Looking ahead, as our model's overall performance improves, we hope to expand Kling AI's use in game production, professional film and television production and other professional large-scale creative industry scenarios. This will expand our large-scale production user base. In the gaming industry, Kling AI's current cooperation with the Sword of Justice mobile game is largely focused on image-generated views of game characters and interactive special effects that have enriched the game's social features.

We believe that Kling AI can play a bigger role in game concept design, scenario generation, character design and other stages of game development. For the professional film and television production industry, Kling AI participated in the entire production process of the world's first AI-generated anthology series, New World Is Loading, from script formulation to completion, demonstrate Kling AI's potential in large-scale professional film and television content production.

In particular, Kling AI can overcome the limits of traditional film and television production, which deepened on physical set construction by generating scenes and images that are difficult to create in reality. This capability has brought more creative possibilities to film and television production, enhancing the visual impact and artistic value of films.

Regarding our strategy going forward, our core direction is rooted in our vision of empowering everyone to craft captivating stories with the help of AI. We are concentrating our resources on iterating Kling AI's foundational models and making the generated results more controllable.

On the product level, we will serve the needs of our core user demographics by continuously elevating the user product interaction experience. Recently, we launched the Kling Lab, integrating text to image, image to video and other features to form a streamlined operational process. It also empowers creators with real-time collaboration capabilities, offering a seamless and efficient one-stop creation experience. For industrial users in game production and professional film and TV production, among other areas, we will drive technological innovation through industry-specific solutions create representative cases of applications and extend the upper limits of our model and product capabilities.

As for mass creators, we will engage users with more creative features, improving product usability while broadening our user case by unveiling innovative in-demand features. In conclusion, we are fully confident in the application scenarios and monetization prospects of our large video generation models. We also believe Kling AI will maintain its market share leadership.

Your next question comes from Felix Liu of UBS.

[Interpreted]

Congratulations on the strong second quarter results. My question is also on AI. In addition to Kling AI, could management share the AI use cases in your overall business, including content and creator ecosystem, online marketing and e-commerce. What are the major progresses so far?

[Interpreted]

Thanks for question. We have consistently focused on deeply integrating AI technology throughout our existing businesses. In Q2, we rolled out the OneRec end-to-end generated recommendation large model and used it for recommending short video content, improving both user time spent and retention. OneRec has also been fully applied to recommendations in local services scenarios, propelling notable growth in local services GMV.

For online marketing service scenarios in Q2, our large AI models made significant progress in AIGC marketing material generation, marketing placement bidding and marketing recommendations. In terms of AI-driven marketing material generation in Q2, we began to explore AIGC marketing material product solutions that better aligned with the customers' industry attributes and application scenarios. Take digital human live streaming in the apparel industry, for example, we launched a streamer model dual-person live streaming feature supporting real-time outfit changes and displays by models according to streamers' commentary.

Once the feature was released, a menswear client changed all of their live streaming sessions from real person to digital human live streaming and increased their marketing spend by almost twofold. For marketing placement bidding, we continued to optimize generative bidding, relying on the quality of our data set and leveraging reinforcement learning. By modeling long-term value-driven strategies, we explore reach sample data to heighten marketing conversion rates. In marketing recommendations, we harnessed the content understanding and inference capabilities of large language models for generative retrieval, uncovering potential relations between users' omni-domain behaviors and advertising conversion.

This enabled end-to-end generation of ads that users are interested in. And with the generated candidate results sent to the subsequent preranking and ranking stages, increasing marketing material click-through rates. This improvement drove low single-digit growth in online marketing services revenue.

For e-commerce business scenarios, we have consistently invested in building AI capabilities centered on multimodel understanding large models and image to video generation models. We've also seen remarkable results from applying AI technology to search-induced recommendations, content generation and other business steps.

In terms of AIGC content generation, our self-developed advanced AIGC tool is comprehensively empowering the e-commerce content ecosystem. The automated generation and optimization of high-quality materials directly amplified product conversion efficiency in product cards, short videos and other scenarios. Optimization of product images through AI-powered intelligent cropping and expansion technologies increased the transaction conversion efficiency of related product cards by over 10%.

To conclude, it's clear we are gradually unlocking AI's value in empowering our content and business ecosystems, particularly AI led to incremental improvement in the growth of our online marketing and e-commerce business. Going forward, we believe AI will create even greater value for our ecosystem.

Next question comes from Brian Gong of Citi.

[Interpreted]

I will translate myself. A very quick question on advertising. Our online marketing service revenue growth accelerated in second quarter versus first quarter. What verticals do we expect to have strong growth in the second half this year? And how can we seize opportunities from those verticals?

[Interpreted]

Thanks for the question. In Q2, thanks to our proactive customer outreach, enhanced product capabilities and empowered by large AI and modern technology, our revenues from external and closed-loop marketing services both achieved a remarkable year-over-year growth. In the first half of this year, we saw year-over-year increases in ad load rate and eCPM, 2 drivers of our growth. We believe these 2 metrics have room for further improvement in the second half of the year.

In terms of industry opportunities, we believe regional lead-based industries such as local services and automotive, along with content consumption industries like short plays and mini games as well as native e-commerce will continue to grow more rapidly.

In regional lead-based industries, in addition to iterating and optimizing product messaging and lead form as well as other products, we will expand our supply through various methods to increase our marketing client base. For example, in the local services industry, we will deepen operations of mature SKUs and incubate new ones in key sub industries, including medical care, home furnishing and construction materials. At the same time, we'll explore growth opportunities in the high potential regions of our local services business.

In the automotive industry, we will help auto OEMs set up the metrics of subaccounts into their official accounts and guide them to improve operational results through short videos and live streaming. We also partner with more automotive dealers in crucial regions through channel agents. In the content consumption industry, we'll continue to encourage clients to align their campaigns with the native in-platform content operations, increasing content value and user stickiness.

In addition, we'll dynamically adjust user payment nodes for in-app purchases and in-app ad promotional events using large model technologies to increase users' willingness to pay and time spent for content consumption, thereby boosting our clients' revenue. Over the past year, there has been rapid growth in marketing spend on short plays.

Next, we are confident we can replicate the native sales funnel and product capabilities of short plays in Kuaishou mini game and [indiscernible] leading to improved total benefits for clients.

For native e-commerce marketing services, we will focus on reinforcing the synergies between our marketing services and e-commerce business. This will allow us to align revenue from closed-loop marketing services with e-commerce GMV, supported by e-commerce merchant expansion, intelligent marketing product upgrades, traffic distribution strategy integration and stronger monetization of pan-shelf-based e-commerce.

Specifically, we will design a support system for key targeted merchants to ensure an early-stage performance and customer outreach through large-scale marketing events, thereby improving merchant retention. Meanwhile, we will strengthen merchants infrastructure capabilities through our omni-platform marketing, AIGC and other intelligent marketing products, lowering the threshold for marketing placement materials.

From a traffic distribution perspective, we will zero in on the long-term value of follower growth to strengthen merchants' commitment to sustain operations. In pan-shelf-based e-commerce, our GMV has maintained fast growth for some time, but we have yet to monetize it on a large scale. In the first half of this year, we achieved rapid year-over-year growth in closed-loop marketing services for pan-shelf-based e-commerce as a result of introducing more high-quality supply, optimized placement funnels and better algorithms. Nevertheless, the advertising take rate for pan-shelf-based e-commerce remains far lower than that of content-based e-commerce, leaving ample room for growth.

In conclusion, looking ahead to the second half of the year, we'll continue to concentrate on industry-specific customer outreach, iterating our intelligent marketing products and optimizing our traffic strategy and algorithms to improve marketing placement conversion for clients and drive rapid growth in our online marketing services revenue ahead of the industry's growth rate.

Your next question comes from Thomas Chong of Jefferies.

[Interpreted]

Congratulations on a very strong set of results. We have seen our GMV growth in Q2 exceed expectations. In light of the intense competition in online shopping, how does Kuaishou maintain the momentum and outpace industry growth? In particular, can management talk about the progress of pan-shelf-based e-commerce as well as the strengthening in monetization?

[Interpreted]

Thanks for your question. The core driver behind our above expectation e-commerce GMV growth in Q2 was the synergized ecosystem that we have built on both the supply and the demand side, along with our efforts to accelerate shelf-based e-commerce commercialization.

On the supply side, we tailored enabling initiatives to different types of merchants, unleashing the vitality of omni-domain supply. For content-based merchants on Kuaishou, we help them systematically utilize their live streaming and short video materials in pan-shelf-based e-commerce scenarios, aided by semi-hosting operation solutions, they achieved integrated omni-domain marketing with exceptional efficiency.

Currently, semi-hosting operation solution has been used by over 20% of merchants. For shelf-based merchants, we provided them with exclusive traffic support through the blockbuster initiative and the new product growth initiative, facilitating their expansion fueled by marketing activity. As for supply-based merchants, we empowered them through our innovative Super Links model, which integrates merchandise and mobilizes KOLs for omni-domain distribution. These differentiated platform empowerment and capabilities drove a 30% year-over-year increase in the number of average daily active merchants in the shopping mall in Q2, along with the broader selection of high potential categories such as fresh food, consumer electronics and home furnishing.

On the demand side, we focus on growing our user base and increasing stickiness tapping into users' lifetime value. We acquired customers with precision from content-based scenarios with monthly active paying users in our e-commerce business reaching 134 million in Q2. High-quality users continue to make up a larger share of the space. Meanwhile, we built a closed loop from product recommendation to conversion and repeat purchases, elevating conversion rates through wish list, mega cloud deals and other scenario-based tools. These efforts led to steady increases in repeat purchase frequency from e-commerce users.

At the same time, we made solid progress in commercialization of pan-shelf-based e-commerce. In terms of commissions, we recommended product sets through Super Links and helped the successful bidders conduct omni-domain sales, adding incremental commissions to our e-commerce business. Furthermore, we helped more merchants achieve one-stop operation by providing them with semi-hosting operation service solution.

In particular, our optimized AI-powered materials have improved the efficiency of short video and live streaming content production, delivering completed AI-generated clips for merchants and boosting additional e-commerce commissions. For closed-loop marketing services, we improved marketing placement products to incorporate e-commerce merchants top-tier content and product offerings into pan-shelf-based scenarios. This, coupled with heightened matching efficiency from enhanced algorithm strategies drove substantial increases in the advertising monetization rate for pan-shelf-based e-commerce.

Looking ahead, as users' consumption needs become increasingly complex and layered, requiring more nuanced decision-making process, merchants must establish stronger connections with consumers. Kuaishou will continue to empower merchants across short videos, merchants self-operated live streaming, KOL distribution and pan-shelf-based e-commerce and tap into more predictable incremental opportunities through AI to unlock more business possibilities.

Thank you, operator. The last question, please.

Your last question comes from Yuan Liao of Citic.

[Interpreted]

Congrats for the strong results in the second quarter. My question is about the AI CapEx and net profit margin. So as Kling AI develops further, are there any new updates for CapEx and AI expenses? So what is your full year profitability target for 2025? And will AI's impact on the full year margin remains 1% to 2%?

[Interpreted]

Thanks for your question. As Yixiao said, we are delighted to see the remarkable effect of AI on boosting the quality and efficiency of our operations. And [indiscernible] Kuaishou' content and business ecosystem is also becoming more visible. We can see this in the rapid ramp of Kling AI's revenue. We currently expect the Kling AI revenue to be double that of the target we set at the beginning of the year. This has reinforced our confidence in the value of our long-term investments in Kling AI.

We also made additional investments midyear in Kling AI reference computing power. As such, we expect Kling AI-related CapEx to double from the beginning of the year budget. On the expenses front, our budget from the beginning of the year already included expected investments for attracting and retaining AI talent. So we don't expect significant changes for those expenses at the moment.

Since Kling AI's gross margin has turned positive at the inference computing power level and has remained stable throughout product iterations and upgrades, the impact of additional investments in inference computing power on the group's profit will remain manageable. As such, we expect the impact of the group's overall AI investments on full year profitability to hover around 1% to 2%. This means that despite our increased investments in AI, we remain confident in maintaining our full year adjusted net margin at a stable year-over-year level in 2025.

In the mid- to long term, we believe there's further room to reduce Kling AI's unit training costs and inference costs. And as we further unlock AI's value across our content and business ecosystem, we believe that the incremental AI investments will bring sustainable business growth opportunities.

Thank you, operator. That concludes the Q&A session.

[Foreign Language]

[Interpreted]

Thank you once again for joining us today. If you have any further questions, please contact our capital markets and IR team at any time. Thank you.