Assured Guaranty Ltd.

Welcome to Questual Technology First Quarter 2025 Financial Results Conference Call. Please note that English simultaneous interpretation will be provided for management and prepared remarks. This English line will be in listen-only mode. I will now turn the call over to Mr. Matthew Zhao, VP of Capital Market and Investor Relations at Questual Technology.

Thank you for waiting. The conference will recommence shortly.

Thank you, our better. Good evening and good morning to everyone. Welcome to a question of Technology First Quarter 2025 Financial Results Conference call. Joining us today are Mr. Cheng Yixiao, co-founder, chairman, and CEO, and Mr. Jinbin, chief financial officer. Before we start, please note that today's discussion may contain forward-looking statements, which involve 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 first quarter 2025 results announcement called March 31st, 2025, issued earlier today. During today's call, management would also discuss certain non-IFRS financial measures. These are provided for additional information and should not replace IFRS-based financial results. For a definition of non-IFRS financial measures, a reconciliation of IFRS to non-IFRS financial results and related risk factors, please refer to our first quarter 2025 results announcement. For today's call, management will use main Chinese as the main language. A third-party interpreter will provide some data in English interpretation in the prepared remarks session and the consecutive interpretation during the Q&A session. Please know that English interpretation is for convenience purposes only. In case of any discrepancy, management statements in their original language will prevail. Lastly, unless otherwise stated, all currency units mentioned are in RMB, I will hand the call over to Yixiao. Hello, everyone. Welcome to Q1 2025 earnings conference call. In Q1, despite a complex and evolving global macro environment, we achieve a solid financial performance through the continued integration of AI technology across our businesses. These intelligent upgrades strengthen both our content and business ecosystem. Across our platform, users and content creators enjoy better experience, and merchants, online marketing clients' operational efficiency improves. As a result, our average DAUs on the Questro app reached a record high of $408 million in Q1. Our total revenue grew by 10.9% year over year to $32.6 billion RMB. GP margin approached 55%. Adjusted net profit reached $4.6 billion RMB with a 14% adjusted net margin. Our new businesses have continued to deliver promising results, demonstrating strong momentum for a second growth curve. Clinging AI maintenance to global leadership in advanced technology while accelerating the use of commercialization, generating over 150 million RMB in revenue in Q1. Our strategic focus on core international markets is also beginning to yield tangible results for our overseas business. After two years of execution, our overseas business delivered its first-ever quarter of operating profit in Q1 with steadily increasing revenue growth. Next, I'd like to elaborate on how to progress our key business segments in Q1. First, AI strategy. CleanAI will continue to advance the quality and effectiveness of our large video generation models while launching more innovative features to meet a diverse range of user needs. In April, we launched the CleanAI 2.0 video generation model, marking a significant upgrade to the large model and its global debut, and setting new global benchmarks in motion quality, semantic responsiveness, and visual aesthetics. This latest version also marks the official debut of our breakthrough concept of interaction, multi-module visual language. Building on this foundation, we introduced a multi-module editing feature that allows users to combine various inputs, such as images, videos, voice, and motion paths to produce customized videos that better reflect their creative intent. Creators can also add, remove, or replace visual elements in generated videos by using image or text prompts, giving them greater creative control throughout the editing process. CleanAI's relentless pursuit of the state-of-the-art large-model video generation technology and performance has earned it widespread recognition from subscribers and corporate clients around the world, contributing to rapid revenue growth. In Q1 alone, revenue from Queen AI reached 150 million RMB. Today, Queen AI is being used across a range of industries, from advertising to marketing to animation foreplay. This growing adoption reinforces our belief that Queen has the potential to become the foundational infrastructure. We have integrated AI technology across our businesses, embedding AI capabilities for our content and business ecosystems. Large models have deepened our understanding of content and user interest, allowing us to precisely match user demand with content value. In turn, this increased user time spent activity on our platform. AI technology is also embedded across our online marketing solutions. The IJC marketing material production, marketing placement agent, large marketing recommendation models, and large bidding inference models have all improved and boosted our clients' marketing conversion efficiency. In Q1, average daily advertising spending on IJC marketing materials remained 30 million. We also introduced a real-time interaction feature for our digital human live streaming rooms, which led to an increase in conversion rates. In the e-commerce scenario, we heightened matching accuracy between users and merchandise based on large-model structured understanding of product attributes. Tools like AI Intelligent Customer Service, AI Tri-Ion Smart Product Presentation fortified e-commerce merchants' marketing capabilities, reducing their operating costs and amplifying operational efficiency. Second, user growth and content ecosystem. In Q1, average DAUs on a question app reached $408 million and MAU $712 million. up by 3.6% and 2.1% year-over-year, respectively. Average DAUs on a question app set a new record, exceeding 400 million for the third consecutive quarter. The average daily timestamp per DAU on Questro app was 133.8 minutes, while total user timestamp rose by 5.9% year-on-year in Q1. Our refined user growth strategy lowered average user acquisition costs. For example, we increased the user's rate of opening the app by optimizing the push strategy and product form, among other measures. On top of that, with a steady supply of rich, high-quality content, ongoing improvements to our traffic distribution system, and diverse community features, we elevated a common consumption experience with a better user retention rate. Chinese New Year has always been a key period for user growth and brand marketing. For the 2025 Chinese New Year holiday, we created a festive online celebration for our 400 million users, offering engaging interactive features and extensive content metrics. Interactive elements effectively sparked greater social interactions across the platform. During the campaign, the pairs of average daily new mutual followers soared by over 40%, and the number of active daily private messages among users with mutual followers grew by 100%. Our extensive Chinese users' content lineup including the Online Festive Fairs, Quaishou Spring Festival Gala, and Liaoning TV Supreme Festival Gala deliver the deeply immersive content consumption experience. The content has generated over 15 billion live streaming views and over 200 billion short video views. We have focused on Kuaishou traditional stronghold in Northeast China and through a series of events such as the Kuaishou Winter Olympics, Liu Laogang Grand Stage, and the Northeast Comedy Show, we also entered the penetration of a characteristic native content and its influence in the dominant region. In sports, we entered a new phase of strategic collaboration with NBA China and continue to be an official short video platform and video content creation community for NBA China. Together, we're building a diversified content matrix, including short videos of game recaps, NBA themed variety shows, and micro short plays and interactive livestream programs with NBA stars, bring users more engaging content and interaction. Third, online marketing services. In Q1, revenue from online marketing services grew 8% year-on-year to $18 billion RMB. By integrating AI across our online marketing solutions, we enabled clients from content consumption, e-commerce, local leads, and other sectors to improve their brand marketing efficiency and achieve better conversion outcomes. This, in turn, led to more budgets from marketing clients. We also applied large language models, content understanding, and reasoning capabilities to improve the results of our marketing content recommendations with combined off-chain of thoughts reasoning based on user behavior. This enhancement further improved the conversion efficiency of marketing materials. In Q1, external marketing services remain a primary growth driver for online marketing services with particularly strong contributions from the content consumption and the local service sectors. For the content consumption sector, marketing spending from 4Play's experiments are strong year-on-year growth. We encourage marketing clients to align their campaigns with native in-platform content operations, such as 4Play's minigames and novels, which increase the content value and foster user's stickiness, while also deepening the platform's understanding of user preference. For the local service sector, we provided solutions and algorithm optimizations that were better aligned with customers' various needs. For example, we offer multiple lead-based solutions, including native private messaging and lead form collection, helping them to reach customers and improve conversion rate. In Q1, marketing spending from local services industry jumped over 50% year-on-year. In terms of intelligent product placement solutions, penetration rate of UAX placement solutions continued to rise, making up more than 60% of total external marketing spending in Q1. Additionally, we actively explore and refine our closed-loop marketing solutions to support e-commerce merchants in building more intelligent omnidomain operations on Quasar, highlighting their operational effectiveness. In a pen-shelf-based e-commerce segment, we introduce merchants' high-quality content and products through optimized marketing placement to sales funnels. And our enhanced algorithm strategies improve the matching efficiency. These endeavors increase merchants' marketing budgets in terms of intelligent efficiency enhancement. Our Omnipartform Marketing Agent 4.0 delivers greater stability in merchants' Omnidomain ad placements, offering a richer variety of control tools and enabling more convenient operations. In Q1 e-commerce merchants using the Omnipartform Marketing Agent 4.0, our smart hosting products contributed 6% of total closed-loop marketing spending. Fourth, e-commerce business. In Q1, the e-commerce GMB grew by 15.4% year-on-year to 332.3 billion RMB with a number of e-commerce monthly average active paying users reaching 135 million. We continue to optimize consumer shopping experience. We empower more merchants and KOLs to expand their operations on quite a bit, capitalizing on the omnidomain synergies between column-based scenarios and pen-shelf-based e-commerce. In Q1, small and medium-sized merchants on Quaishou grew rapidly, mainly driven by our ongoing efforts to enhance support for the new merchants and the application of large models across various scenarios. The number of newly onboard merchants rose by over 30% year-on-year in Q1, benefiting from early-stage traffic support and a series of cost-reduction policies for new merchants. Moreover, we continue to align incentives and subsidy options to merchants' key growth cycles. In particular, we launched five major programs, including fast track access, targeted promotions, subsidy incentives, and more, to assist the export-restricted companies to tap into the domestic market. At the same time, we advanced the use of AI large models across the merchants' operations. In Q1, we provided live-streaming merchants with a full set of intelligent streaming tools, including AI-generated scripts, description parameters, smart audio commentary, and intelligent product selection. The adoption of these tools has helped more merchants achieve operational breakthroughs. In Q1, we advanced our KOL e-commerce by establishing dedicated merchandise operation centers to support KOLs in distributing high-quality products at a greater scale, further strengthening our control over merchandise selection and supply. We also deployed KOL and operational resources across our platform. to engage and socialize the brands through structured platform-involved groups. During the Chinese New Year shopping season, we launched a New Year Blockbuster Initiative to focus on high-demand product categories and integrate platform-wide selling capabilities by introducing premium products at competitive prices. We also fortify the price advantage of individual items by providing subsidies on top of the affordable prices helping KOLs enrich the products of action in their live-streaming rooms, lowering the threshold of older placement conversion and increasing sales. For small and medium-sized KOLs, we supported their efficient growth through initiatives like our Horizon Start initiative. By offering traffic initiatives, cash support, and city-level operational support, we successfully expanded our medium-tier KOL base. During the women's day promotion day, GMB from KLS rose by 30% and the GMB from small and medium sized KLS surged by over 50% on a year basis. In terms of diversified scenarios, we continue to enhance our three-in-one business model that combines live streaming, shopping mode, and short video. In Q1, pen-shelf-based e-commerce GMV once again outperformed overall GMV growth, accounting for about 30% of total e-commerce GMV with steady improvements on both the supply and demand side. In Q1, average daily active merchants grew by over 40% year-on-year, driven by proactive efforts to tap into industrial zones to attract quality merchants. enrich our supply base and broaden our product selection. We also benefited from enhanced traffic support across recommendations to search channels and stores. During the Women's Day promotion, a pen-shelf-based e-commerce GMV and search-induced e-commerce GMV soared by 51% and one or 8% year-on-year, respectively. For video e-commerce, GMV also saw strong momentum, increased by over 40% year-on-year, as we made e-commerce content more expressive and engaging by embedding short video into live streaming. Synergy between the four videos displayed advantage and live streaming's high conversion efficiency increased the content diversity and drove more efficient user conversion. Furthermore, our large AI model expertise has elevated the overall service capabilities of e-commerce merchants. By utilizing large model agent technology and multi-module capabilities, the resolution rate of our intelligent customer service increased to 80% in Q1. This lowered merchants' costs and shortened the average response time, improving the overall user experience. Our AI capabilities continue to upgrade our e-commerce infrastructure. AI has deepened intelligent applications in product information construction, recommendation algorithm optimization, and content creation tools, strengthening the customer product matching and simplifying content production for merchants. And these advancements injected incremental momentum into our e-commerce system. Next, regarding our live streaming business, In Q1, live streaming revenue returned to a positive growth trajectory, increasing 14.4% year-on-year to 9.8 billion RMB, propelled by a firm focus on diverse top-tier content. We made consistent efforts to build a healthy, stable live streaming ecosystem to amplify the value of live streaming content consumption. We further strengthened our operation in core categories, including multi-host and group live streaming. By the end of Q1, the number of our partner talent agencies had grown by over 25% year-on-year, and talent agency management streamers increased by over 40% year-on-year. We also doubled down on developing premium grand stage content to help the streamers and KOLs efficiently retain followers and unlock more monetization potential. At the same time, we can introduce the targeted support policies and optimize the traffic mechanisms, bringing offline entertainment and the culture of consumption and formats online and foster organic offline-online interactions. We can enhance users' interest and engagement in high-quality live streaming content We continue to strengthen our gaming content ecosystem by deeply integrating short video live streaming and community command operations with how the game developers break through traditional promotion boundaries. We also collaborated with major eSports events on live streaming copyrights and co-operated IP-based events while operating our own eSports team, KSG. These endeavors drove more exploration and innovation in that combining gaming and entertainment live streaming content. Beyond content, our live streaming plus strategy continued to empower traditional industries. In QRR, our daily number of users submitting resumes is on quite higher, increased by over one and 10%. The number of matches grew by over 300% year on year. In ideal housing, the daily lead generation surged by one or 50%. Finally, in terms of our overseas business and local services progress, In Q1, our overseas business continued to make steady progress with revenue rising by 32.7% to 1.32 billion RMB. Online marketing services maintained strong year-on-year momentum with effective cost and expense control. Our overseas business achieved the quarterly operational profitability for the first time. We further improved overseas customer acquisition efficiency by focusing targeted promotion on high-value demographics. This contributed to steady DAU growth in Brazil, one of the core international point markets. Following the tremendous success of sponsoring the Brazil reality of Triple-B last year, we doubled down our strategic partnership to become this year's exclusive official short-review partner of Triple-B 2025. This boosted equice brand visibility in Brazil and delivered richer pen entertainment content and interactive experiments to local users supported by our sustained algorithm and traffic optimization. The average daily time spent per DAU in Brazil continue to grow steadily both year-on-year and quarter-over-quarter. On the monetization front, we leverage our strong base of extensive local content to help advertisers in building a new content-driven marketing approach that uses multiple produced product formats to reach their target user groups. At the same time, our e-comment spend system in Brazil saw healthy growth in order volume supported by disciplined ROI management. In Q1, our local services business deepened its presence in lower tier cities. We refined our operations around city clusters, leveraging our user base to offer high value-for-money local products and services. Through dedicated small city projects, we further expanded our presence in these markets, drawing a local service GMB to sustain rapid year-on-year growth in Q1. Over 65% of its growth came from lower tier cities. Category-wise, in-store dining services remain the backbone of our local service business with static growth, The general in-store business has seen balance the development across the on-site retail, leisure, entertainment, and other categories. On the supply side, the number of active merchants and available merchandise grew by 81% and 71.3% year-on-year, respectively, in Q1. We also encourage the merchants to adopt the self-operated live streaming, which together with the employees' promotions and the KOI distribution. With the support from AIGC-driven content creation tools, this allowed us to scale both the quality and the volume of content more efficiently. helping merchants to gain high-quality traffic exposure. Greater product and content supply drove user transaction conversion, with the number of average monthly paying users increasing by 73.1% in YLY in Q1. Regarding monetization, we further optimized our local advertising products, improving the native operation of leads and traffic allocation strategy, which reinforced the effectiveness of merchants' marketing placements. As a result, local service revenue rose twofold year-on-year. In addition, our due-engine promotion strategy compiling a large-scale campaign with targeted small scale promotions improved both marketing efficiency and effectiveness of their subsidies, leading to continued loss narrative for our local service business. To conclude, facing a complex and evolving marketing environment will remain committed to our founding mission and user-centric approach. Through AI technology, we're fortifying questions, content, and business ecosystems while pushing the boundaries of monetization. We're confident that by staying focused on the long-term technology investment and delivering real user value, we will be able to rise above short-term cycles while improving user experience, empowering industries, and giving merchants and marketing clients more tools to drive quality and efficiency. We will create more value for our shareholders. This concludes my remarks, and now the financial part. Thank you, Yixiao. Hello, everyone. During the first quarter, we advanced our iterative upgrade of our clean AI large model to further strengthen our core competitiveness. Meanwhile, we enhanced the user experience and helped online marketing clients and merchants improve operational efficiency and expand their business with rich content and continuously optimize the traffic coordination mechanism. These efforts result in healthy and steady growth in both our operating metrics and financial performance, laying a solid foundation to support our full year goal. In Q1, our total revenue increased by 10.9% year-on-year to 32.6 billion RMB, and adjusted net profit reached 4.6 billion RMB, representing an adjusted net margin of 14%. In particular, our overseas business delivered its first ever quarter of operating profit in Q1. Let's take a closer look at our Q1 financial performance. Our total revenue grew 10.9% year on year to 32.6 billion RMB Q1. The increase was driven by growth across each of our core business, including online marketing services, e-commerce, and live streaming. Online marketing services revenue increased by 8% to 18 billion RMB in Q1 from 16.7 billion in Q1 last year. This increase was driven by the full process application of AI technology in our online marketing solutions, which significantly enhanced our marketing materials conversion efficiency and led to increased consumption from marketing clients. Revenue from other services, including e-commerce, reached 4.8 billion in Q1, up 15.2% from 4.2 billion RV in the same period last year. This increase was mainly attributable to the growth in e-commerce GMV, which boosted e-commerce commission income. Leveraging our refined omnidomain operations and AI empowerment across various scenarios, we further elevated the number of e-commerce monthly active paying users and monthly active merchants in Q1. We also provided merchants and KOLs with richer marketing tools and more diverse traffic incentives, helping them grow rapidly and expand their businesses. In Q1, our live streaming revenue was 9.8 billion RMB, an increase of 14.4% from 8.6 billion RMB in Q1 last year. Resuming positive year-over-year growth, we're committed to building a long-term and sustainable live streaming ecosystem. By refining our operations and consistently developing diverse content categories, we further increased user engagement with high quality live streaming content. Cost of revenue increased by 11.5% year-on-year into one to 14.8 billion RMB, accounted for 45.4% 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 the right of use, assets, and the moralization of intangible assets. In Q1, the gross profit grew by 10.4% year-on-year to $17.8 billion. The GP margin was a 54.6% increase of 0.6% point sequentially. Moving to expenses, selling and marketing expenses increased by 5.5% year-on-year to $9.9 billion, accounting for 38.4% of total revenue, dropping from 31.9% to 1 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 businesses. while the decline as a percentage of total revenue was attributable to our improved operational efficiency. R&D expense was 3.3 billion, rising by 16% year-on-year, accounting for 10.1% of total revenue. But in three-day expenses increased by 79.2% year-on-year to 828 million RMB, accounting for 2.5% of total revenue. The increase in R&D and administrative expenses was mainly due to a higher employee benefit expenses, including related share-based compensation expenses. Group level net profit for Q1 was 4 billion R&D. Group level adjusted net profit rose 4.4% year-on-year to 4.6 billion R&D, with an adjusted net margin of 14%. Our balance sheet remains robust. with cash and cash equivalence, time deposit, restricted cash and wealth management products totaling 94 billion RMB as of March 31, 2025. We generated a positive operating net cash flow of 3.3 billion RMB in Q1. Additionally, we actively delivered on our commitment to shareholder returns. By the end of March, we repurchased an aggregate of approximately 1.42 billion Hong Kong dollars, or 29.19 million shares, which accounted for about 0.68% of our total shares outstanding within the year 2025. Looking ahead, we will remain focused on our user needs, promoting healthy and prosperous development of our content and business ecosystem. In addition, we will firmly execute our AS strategy and explore diverse growth avenues while fortifying our existing business, driving consistent business development and creating long-term value for users, partners, and shareholders. This concludes our prepared remarks. Operators, please now open the call for questions.

We will now begin the question and answer session. If you'd like to ask a question, please press star 1 and wait for a name to be announced. One moment for the first question. The first question comes from Felix Liu of UBS.

Please go ahead. Thank you, management, for taking my question. Could management provide an update on CleanAI's commercialization? What are the main growth drivers? And what is the growth strategy for clean AI going forward? Thank you.

Thank you for your question. Based on the global lead and continued to add technical and product capabilities, since the beginning of this year, the scale of clean AI's commercialization has shown an accelerated trend. In the first quarter of this year, the scale of clean income has reached 1.5 billion RMB. Judging from the income structure, The paid subscription has contributed nearly 70% of the business revenue. The paid user is based on the user's transmission property and paid user's ability to pay, such as professional self-media video creators and advertising marketing entrepreneurs, etc. Currently, the paid subscription number of paid users and ARPU are both showing a higher increase. Double-wheel drive allows paid subscription revenue growth. Thank you for your question.

Built upon the world's leading continuously iterated technologies with advanced product capabilities, CleanAI's commercialization scale has accelerated since the beginning of this year. In Q1, revenue from CleanAI reached 1.5 million RMB. In terms of its revenue mix, paid prosumer subscriptions currently account for almost 70% of CleanAI's revenue. Prosumers such as professional independent video creators and advertising and marketing professionals combine the dissemination of attributes of individual subscribers with the purchasing power of corporate clients. The number of paid prosumer subscribers and their ARPU are increasing rapidly, driving strong growth in prosumer subscription revenue. At the same time, CleanAI provides API services to over 10,000 corporate clients across industries, such as professional content creation platforms, advertising and marketing, film and animation, game production and smart devices, achieving an exceptionally high renewal rate. We believe CleanAI is set to become the new foundational infrastructure for video creation across even more industries going forward.

In April of this year, Clean announced the video-generated digital model upgrade and launched the CleanAI 2.0 master version to global users. Client AI in 2.0, in dynamic quality, language response, image aesthetics, etc. have made a significant improvement. It has greatly increased the ability to create high-quality videos. It can meet the needs of more complex scenarios for professional creators. We will also launch more cost-effective versions in the near future to provide users with more variety of options to meet the needs of different users and different creators.

In April this year, we announced a major upgrade to CleanAI's video generation foundation model and launched CleanAI 2.0 Master Edition for global users. CleanAI 2.0 significantly improves motion quality, semantic responsiveness, and visual aesthetics, greatly expanding the upper limit of a large video generation model's creation capabilities and meeting the more complex needs of professional creators.

We will launch more versions with cost-effective advantages in the near future, providing users a wider range of options to meet diverse video creation needs across various scenarios. Especially the operation of overseas areas to make users grow. For example, we have highlighted the next game, the new image head-on project. Providing a new AI machine creator based on content and technology. Funding to support the global propaganda resource, professional IP virtualization system and stable algorithmic guarantee. Currently, the project has achieved breakthrough results. The world's leading AI units are gathered in the new world. Next, we plan to maintain a global leading position between foundational model by continuously iterating its technological capabilities and engineering animation.

while enhancing user experience through ongoing product innovation. Additionally, we will continue to carry out relevant operational activities, particularly in overseas regions, to grow our user base. For example, our next-gen new image venture capital plan supports emerging AIGC creators with strong content and technical expertise by offering funding, global promotional resources, professional IP incubation systems, and a stable computing power. The plan has already delivered breakthrough results. With the global premiere of the trailer for the first AI short play series, New World is loading. The full short play will be released soon. Meanwhile, we have also increased the feed ads and other forms of marketing placements, but these will be conducted on a limited scale based on strict ROI considerations.

In short, the success of AI In summary, CleanAI's success has reinforced our confidence in pursuing our focused strategy, including investments in organizational synergy, computing power, algorithm enhancement,

and data accumulation to maintain clean AI industry advantages and drive rapid monetization growth.

Thank you. The next question comes from Lincoln Kong of Goldman Sachs. Please go ahead.

Thank you for taking my question. My question is about OEI is empowering companies' existing business, so that includes online marketing service and the e-commerce business. And there are any quantitative metrics in this regard that you can share with us. Thank you.

Thank you for your question. We have always been focused on the deep integration of AI technology with fast-moving existing businesses. This season, we have also accelerated the penetration of AI technology in fast-moving multi-businesses. Thank you for your question.

We have always been committed to integrating AI through our businesses. In Q1, we step up the adoption of AI technology in multiple business scenarios, on top of leveraging large models for common understanding and recommendation accuracy, which increase user timestamps and engagement. As we mentioned before, we have also applied large model technology to various aspects of our middle and back offices, including code writing and content review.

Next, I'd like to elaborate on how AI is empowering Quaishou's online marketing and e-commerce business scenarios. and combined with 4-way chain technology to summarize and create a better quality marketing material, which can significantly improve the conversion rate of marketing materials. And digital people's live streaming女巢 has greatly improved customer's live streaming conversion rate after it has the AI interaction ability. In addition, the optimization of smart customer service in the flow rate of conversation and humanity has improved the effect of user flow transfer. 1. In the traditional sense of advertising, AIGC's marketing material consumes about 300 million RMB per day. 2. AX, a smart advertising product based on a large model, is the potential target of advertising. 3. Evaluate the ability of advertising for each material and combine it with price feedback to automatically adjust the marketing strategy. 4. The full-time advertising of AIGC 4.0 in the internal cycle has achieved commercial flow and e-commerce flow together. In online marketing scenarios, AI has significantly empowered various assets.

including marketing material production, placement agents, and recommendations. In terms of material production, our one-stop video creative production platform, Magnetic Creator, utilizes a multimodule of large models to learn and understand from vast amounts of content. By employing chain of thought technology, it generates higher quality marketing materials, leading to a notable increase in conversion rates of marketing placements. Additionally, our digital human live streaming room, Nuva, has greatly improved the client conversion rates after integrating AI interaction capabilities. Our intelligent customer service system, Pi, is converting more leads by sounding more natural and human. In Q1, during the traditional slow season for online marketing services, average daily spending on AIGC marketing materials reached approximately 30 million RMB. For external marketing services, our smart placement product, UAX, predicts potential audiences for advertisements using large model inference, evaluates the advertising performance of each material, and automatically adjusts the placement strategies based on bidding feedback. For closed-loop marketing services, the Omni Platform Marketing Agent 4.0's advanced bidding and price adjustment capabilities help merchants capture more organic traffic by integrating online marketing traffic with e-commerce traffic. Regarding marketing recommendations, by deeply integrating global knowledge with advertising expertise, large models can infer the relationships between users' natural behaviors and advertising actions, enabling end-to-end ad production that enhances the accuracy and conversion efficiency of marketing recommendations.

In the e-commerce scene, we use AI's large-model ability to produce from content, accurate matching and intelligent customer service and other aspects to help improve the efficiency of 3D printing. In terms of content production, based on large-model video recognition and deep-seq and text ability, automatic production of live broadcast high-glow video material shows the product selling point, helps the consumer to receive the live broadcast frequency. In the first quarter of 2025, the automatic production of A.I. live-streaming clips of Japan GNV increased by more than 300 percent. In terms of accurate matching, we combined a large-scale thinking chain cross-scene demand prediction, automatic recognition, strong connection content, and a new label, to make the algorithm understand the user's needs more, and to increase the efficiency of matchmaking. In terms of intelligent customer service, we used commercial characteristics, user behavior, and historical dialogue, and order information, e-commerce rules, and so on, and form a smart workflow that responds quickly and efficiently to the user's questions, and achieve a 80% increase in the number of smart customer service solutions. In the future, we will have the confidence to use AI potential to help quickly and further improve our system, especially to bring new growth to our online marketing and e-commerce business. At this time, I will also share more progress with you.

In e-commerce scenarios, we leverage large AI models to enhance merchants' operating efficiencies through content production, precise matching, and intelligent customer service. In terms of content production, leveraging large model video recognition and deep-seek semantic text capabilities, we automatically generate short video materials from live streaming highlights, showcasing product setting points and helping merchants capture long-tailed traffic. In Q1, the average daily GMB of AI-generated live streaming highlights increased by more than 300% year-over-year. For precise matching, our cross-and-arrow demand predictions utilize large models' chain of thought to automatically identify strongly correlated categories and interest tags, allowing algorithms to better understand users' potential needs and improve user product matching efficiency. For intelligent customer service, We integrate merchant characteristics, user behaviors, historical conversations, product and order details, e-commerce rules, and other information into large models, forming an intelligent workflow that swiftly responds to an efficiently resolved user inquiries, achieving an intelligent customer service resolution rate of up to 80%. Going forward, we are confident that by continuing unlocking AI's potential, we will further improve quality and efficiency, particularly driving incremental growth in our online marketing and e-commerce businesses. I look forward to sharing more updates on our progress with you soon.

Thank you for the question. The next question is from Brian Gong from Huaqi. The next question comes from Brian Gong from C2.

Please go ahead. Thank you. I will translate myself. Thank you for taking my question. Could management please share the recent trends in online marketing service and which sectors performed better? And also, what could be the key growth strategy for this segment this year?

Thank you. Next question. Looking at the overall consumption of online online sales services in April, We are also confident in the return of double digits in the second quarter of the online marketing service. In terms of the internal circulation, we have been able to improve the connection of the head-to-head and smart head-to-head products in the semi-price range, and the upgrade of the full-time promotion of 4.0. In recent years, the internal circulation has increased the number of businesses and the number of heads and heads. In terms of the external circulation, while the content consumer industry continues to maintain the growth of the high commercial number of heads and heads, Thank you for your question. In April, we saw a steady pickup in client placements.

and we're confident that year-over-year growth rate for online marketing services will return to double digits in the second quarter. For our closed-loop marketing services, the number of merchants accelerated year-over-year recently, thanks to improvements in our pen-shell-based e-commerce sales files and upgrades to our OmniPlatform Marketing Agent 4.0. In external marketing services, spending in the content consumption sector continued to grow, in the high double digits year-over-year. And in the local services spending, the year-over-year growth rate also increased significantly. We're confident that we can maintain rapid growth this year, mainly by helping more clients in content consumption, e-commerce, and local services operate their businesses more efficiently and sustainably on our platform.

In the consumer industry, short stories, novels, and games as advertising materials. Not only can we provide the value of advertising borderline, but also allow content and users to have a good interaction, help platforms and customers understand users, realize advertising and content, and create and manage. In 2024, we have achieved over 300% of the same growth in the advertising industry. This year, it is expected to still be able to achieve high growth. In the content consulting industry,

add materials in a form of short plays, novels, and mini games not only drive monetization, they also align closely with users. This helps both our platform and clients better understand users and achieving the vision of advertising as a form of content and creation as part of operations. In year 2024, marketing spend in the short play industry grew over 300% year on year. And we expect that it can continue to grow rapidly this year, Minigames and mobiles are also seeing exciting growth. Q1 marketing spending for minigames rose by more than 30% over the year. Beyond smart placement with UAX, this year we will also use large-model technology to dynamically adjust the user payment notes, which can help expand users and clients' overall revenue in the content consumption industry.

In the e-commerce industry, Kuanshou as a flow-rich and in the new city has a higher penetration rate platform, for brand commercial expansion has a stronger range. And we are how to help businesses to do content e-commerce management to reduce cost. There is still a lot of room to work hard. At the same time, last year, the price of rice was reduced by one year, and a high market growth was achieved. In the e-commerce industry, our abundant traffic and high penetration in lower tier cities are very appealing to brand merchants.

While there is still plenty of room to improve how we help merchants build counter-driven e-commerce operations and lower their operating costs. Meanwhile, pen-shelf-based e-commerce GMV has grown rapidly in the past year. But marketing spend was held back by weaker data infrastructure and sales funnel constraints. We expect to see an acceleration in marketing spend in pen-shelf-based e-commerce starting in Q2.

In the local life industry, in the context of the transformation of consumer structure, we have observed that there is a huge demand for local life services by more than 700 million fast users, which has also brought a new increase in the number of business owners in the local life industry. The business owners operating in the local area can be divided into two categories according to the demand of the platform. One type is the local life business, which is understood by everyone in the traditional sense, through direct direct transaction, such as the group purchase of the breakfast business. Another type of business owner is the one who gets the golden clue on the platform, and through the management of the back-line road, such as legal consulting and home decoration industry. This year, we will continue to optimize the ability to improve the native life and private life, and improve the efficiency of local life, and use the ability to create digital live streaming and smart customer service in-house AIGC capabilities to reduce the cost of the business and bring the growth of marketing investment.

As for the local services industry, a bit of consumption makes transformation, we're seeing rising demand among questions over 700 million users. This is opening up new growth opportunities for merchants in this industry. We support two types of local services merchants on our platform. Traditional ones are focused on increasing GMV, like restaurant group buying, and those focused on lead generation and customer conversion. like in the legal and home renovation service industries. We're improving our native private messaging capabilities on our platform this year. By using AIG C2s such as Magnetic Creator, Digital Human Life Straming, and Intelligent Customer Service, we will assist merchants in lowering their operation costs and scaling up their marketing impact. In summary, we will continue to focus on industry-specific refined operations, intelligent marketing product iterations, and algorithm optimizations to improve client's marketing conversion.

Thank you. Next question is from Daniel Chen from Morgan.com. The next question comes from Daniel Chen from JP Morgan. Please ask your question.

Thank you for giving me the opportunity to ask questions. I want to ask a question from the audience. The 6.18 event has already started this year. Can you share with us your main strategy this year and what are the highlights compared to previous years? My question is related to e-commerce. So this year's 6th, 18th shopping festival has already begun. Could you share the main strategy for this year? And also what's the highlight compared to the previous years? Also please share the development strategy for the shopping mall feature. in the next stage.

Thank you.

Thank you for the question. Amid ongoing challenges in consumer demand, we have introduced more strategic initiatives for this year's 618 shopping festival to help merchants and KOLs fully harness the new opportunities in omni-domain operations. During the 618 shopping festival, we will provide $100 billion in traffic resources and $2 billion in subsidies and launch innovative strategies across three dimensions.

users, products, and merchants and KOLs. and other marketing tools to improve user conversion rate and purchasing power, and to realize the improvement of the apartment and the room, and to promote the size of the user. Secondly, we will focus on online new products, such as large-scale products, large-scale new products, and daily long-term products. We will focus on the characteristics of the four good products, the corresponding promotion strategy and service resources, such as large-scale products with competitive price, You can use the super link to share your product with others, so that the good stuff won't be sold out. Finally, in Sanda, we have created a distribution and distribution-based support plan for our head, waist, and potential streamers. By expanding the platform, we can make our products richer and more competitive. At the same time, we have also launched streamer competition, challenge competition, red carp, and other streamer support.

First, on the user front, we're combining pre-sale promotions with the reservations for live streaming to lock in early demand through follows and the flash sales. During the official promotion period, we will step up efforts to activate and re-engage users through marketing tools such as large subsidies and free order promotions to boost the conversion and purchasing power. This will allow us to gain new users in the public domain and deepen engagement in the private domain. Second, on the product side, we're catering strategies for four key product types. New launches, promotion blockbusters, high interest promotion products, and everyday best sellers. For example, Blockbuster items with strong price appeal will get support from platform subsidies. Special promotions like the Blockbuster Initiative and the KOL Matchmaking to help sell through. Finally, for merchants and KOLs, we have developed the targeted tiered support plans based on KOL's scale and potential. Top tier, mid-level, and the emerging talent. We have also expanded product variety and improved the pricing to stay competitive. On the traffic side, we have launched a program such as streamer competitions, challenges, and hourly subsidy to help large scale and high potential streamers break out. And by combining short videos with live streaming and adding shopping links to popular live streaming sessions for blockbusters, we will further stimulate omnidomain transaction opportunities across the platform.

For fast-hand business, it has now become an important area for fast-hand e-commerce. Next, we will launch a diversification strategy for different types of business in the business world. On the one hand, for business with limited resources or new business with fast-hand experience, we will provide smart A.I. product optimization, free product flow support, marketing activities, advertising, and advertising protection services. In other words, material is one of the most important factors in the conversion rate of the image product card. We can use AI-capacity to help customers optimize the material in several dimensions, such as title, image, video, etc. to ensure the new efficiency of the goods in the stock market. On the other hand, for business owners who are full of operating resources, or business owners who have a certain amount of business in fast hands, we have a wide range of commercial channels, such as D-Shop, T-Mai, etc. in the mall. Our shopping mall has become an important growth driver of our e-commerce business.

To build on this, we will launch tailored operational strategies for different types of merchants. For merchants with limited operational resources or who have been newly on board, we will provide diverse marketing hosting services such as AI-powered material optimization, free traffic support for products, marketing activity registration, and the blockbuster production mechanisms. For example, since the product visuals and descriptions directly impact the click-through and the conversion rates, Our AI helps merchants improve material quality, such as titles, images, and videos, ensuring the efficiency of information distribution for shelf-based shopping scenarios. For more experienced or operationally resourced merchants on Quaishou, we will provide exclusive traffic channels, marketing tags, and extra exposure in the shopping mall through official marketing channels such as Big Brand, Big Subsidy, and a special sale, one major initiative this year is our superlinks, which create links to goods, stack additional subsidies, and accumulate user assets through the platform. As a result, conversion rates for superlinked products are nearly five times higher than regular ones.

总之呢,快手电商将持续发挥全域精优势, 丰富细分类目商品供给, cross-industry to meet the user's diversified consumer needs. At the same time, fully utilize AI capabilities to fully manage AIGC content production, accurate投放, intelligent customer service, etc. to reduce the cost of the business. We are very confident to help more businesses to explode during the depth period, to achieve a solid improvement in business size and management quality.

In conclusion, Questro e-commerce will continue to leverage its omni-domain operational advantages, enrich category-specific product supply, meet users' diversified consumption needs across different scenarios, and fully utilize AI capabilities to empower merchants in their end-to-end operations. We aim to reduce merchants' operating costs through features such as AIGC content production, accurate placement, and intelligent customer service. We're very confident we can have more merchants achieve explosive growth through our major promotions, improving their business scale and operational quality.

Thank you, operator.

Next question, please. The next question comes from Xueqing Zhang of CICC. Please ask your question.

Thank you, Mr. Kuan, for answering my question. I would like to ask you to share with us your thoughts on AI's investment this year and its impact on the full-year profitability. Thank you.

Thank you for your question. First of all, the investment in AI is poor. As Mr. Yi said, KELIN AI has achieved a more than 7% growth in the first quarter. After the release of version 2.0 in April, it has received a wide number of reviews from domestic and foreign creators, especially those who can solve the more complex creative needs of professional creators. At the same time, KELIN AI has provided multiple versions of choices for creators to satisfy users' different creative needs and the video production under the market. KELIN's world-class technology and product capabilities have ensured that we are able to Thank you for your question.

Regarding our investments in AI, let me start with CleanAI as just mentioned by Yixiao. CleanAI achieved a better than expected revenue scale in Q1. Since CleanAI 2.0 launched in April, it received a widespread acclaim from creators both domestically and internationally. especially for its ability to address the more complex creative needs of professional creators. Meanwhile, we have the multiple CleanAI versions for creators to address their different creative needs and video production scenarios. CleanAI's world-leading technology and product capabilities ensure we can continuously accelerate our commercialization, and we're confident that we can maintain this industry-leading revenue growth rate.

As for the impact of AI on the company's profitability, we will increase the cost of AI related expenses. For example, the cost of the relevant developers, we expect to increase to a certain extent. Mainly used in the attraction, maintenance and team construction of AI technical personnel. Because it is possible that AI has already achieved a huge profit margin at the推理 level. With the expansion of the business scale, even if we focus more on推理算力, the impact of corporate profits will be relatively small. At the same time, we are also very confident that we will be able to further reduce the cost of tax evasion through technical deductions. With the expansion of the business revenue scale, the loss of the overall loss rate of Kerlin AI will decrease due to the shortfall of fixed quality cost of last year's cost and human cost. From the perspective of the whole year, the impact of AI strategy, including Kerlin, on the overall profit rate of the group will be within the range of one to two percent. And in the long term, we believe that AI can become one of the company's second growth trends, contribute revenue and profits to the company, and create more value for shareholders.

Regarding AI's impact on our profitability, we anticipate expenditure in AI-related areas will increase, particularly in R&D personnel costs. We expect a year-over-year rise in these expenses, primarily allocated to attracting and retaining top AI talent, as well as team capacity building. Clean AI has already generated a positive marginal profit at the inference level. Even if we scale up and invest more in inference computing power, the impact on our bottom line will be relatively small. We're also very confident that through technological iteration, we can bring inference costs down even further. As our revenue grows and fixed costs like training and labor are spread out more, CleanAI's overall losses and loss margin will continue to narrow. For the full year of 2025, our AI investment, including CleanAI, the impact on the group's overall profit margin will be among 1% to 2%. In the medium to long term, we believe AI can become one of the second growth curves of the company, contributing to both our top line and bottom line, creating more value for shareholders.

Thank you. That's the end of the Q&A session. Back to you, Operator.

This is the end of the Q&A session. Now, Matthew, please give your final speech.

Thank you once again for joining us today.

If you have further questions, please contact our capital market and investor relations team anytime. Thank you.