KSHTY (KSHTY) Q2 2026 Earnings Report, Transcript and Summary

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 to everyone. Welcome to Kuaishou Technology Second Quarter and Interim 2026 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. 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 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. These are provided 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 related risk factors, please refer to our second quarter and interim 2026 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 Q&A 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 statements will prevail. Lastly, 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 a committed to our long-term vision and strategic AI investments, and we achieved high-quality growth. In Q2, the Average DAUs on the Kuaishou App reached 412 million (sic) [ 412.5 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 remained stable, further demonstrating the resilience of our business operations. Now I'll elaborate the progress of each segment in Q2. First, our AI strategy and progress of our large video generation model, Kling AI. In Q2, Kling AI continued advancing its vision of "empowering everyone to craft captivating stories with AI." Through model breakthroughs, product feature upgrades and a global creative ecosystem expansion, Kling AI reinforced its global leadership in modal -- multimodal 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 4K output, it enables one-click generation of cinema-grade 4K video. Designed for film, TV and advertising professionals and delivers high-resolution visuals without complex postproduction, achieving industrial-grade cinematic visual effect. Kling AI also released the 3.0 Turbo model, which maintains stable, high-quality dynamic output and precise audio-visual sync, while improving creative efficiency and reducing production costs. Kling MCP and Kling CLI were officially launched as well, enabling AI agents to dispatch Kling AI for a batch content creation and expanding its use case in workflow automation and intelligent orchestration. Kling AI continues to empower professional content creation with its technical innovation and creative achievements earning broad industry recognition. At the 2026 Cannes Lions, 2 advertising videos generated by Kling AI won 1 Silver Lion and 2 Bronze Lions, demonstrating recognition of its creative capabilities by one of the world's premier creative awards program. At the 2026 Beijing International Film Festival, multiple Kling AI-created works, including Paper Smartphone, were selected for the AIGC Section. Stroke of Genius with Liu Cixin serving as literary supervisor won the "Annual Featured Work in Short Play/Micro-Short Play" Award highlighting Kling AI's strength in empowering professional filmmaking and content creation. Driven by model breakthroughs, continuous product enhancements and deeper penetration, Kling AI's commercialization maintained 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 video commercialization. In Q2, we made a solid progress advancing the research and application of our general purpose large models. We released Keye-VL-2.0, an upgraded multimodal -- model that enables deep perception across 256,000 ultra-long context and delivers nearly lossless reasoning for long-video temporal understanding. It also became the first Keye-based model with a built-in agent collaboration mechanism, demonstrating the potential for code parsing and a tool invocation. 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 strategy design, evaluate performance and accumulated insights, significantly boosting the iteration efficiency and recommendation algorithms. In Q2, we developed scenario-based agent capabilities for generating marketing materials across our online marketing services. Tailored to different industries and client needs, we achieved over 70% year-over-year growth in AIGC short video marketing spend in Q2. We also extended our generative recommendation and intelligent bidding models to live streaming, search and pan-shelf-based e-commerce scenarios. This improved the marketing content recommendation effectiveness and unlocked more client marketing spend budget. In Q2, our self-developed general purpose agent, MyFlicker, has integrated skills across key internal system began serving all employees. By June, over 92% of employees were using our AI agents, and the AI code contribution rhythm on R&D engineers reached 60%. Meanwhile, Vanchin, our enterprise-grade large model platform integrates high-performance model inference, cost-efficient model customization and fully managed service. Vanchin supports Kuaishou's internal AI use cases, and also external enterprise clients with large model infrastructure. On OpenRouter, a global AI model aggregation platform, several Vanchin hosted open source models ranked among the top by API call consumption. Second, user growth and content ecosystem. In Q2, average DAUs on the Kuaishou App reached 412 million and average MAUs reached 797 million (sic) [ 797.3 million ]. We leveraged AI-powered smart placement to improve user acquisition efficiency and boost retention among new and reactivated users. We consistently refine our traffic management to better serve our highly active core users. We also continue to emphasize our social features. Users with mutual followers engaging in private messaging grew over 15% year-over-year. We also optimized the Kuaishou App's core features, comprehensively elevating the user experience through systematic improvements to product features, video playback, smoothness and intelligent interaction. We believe in the power of community and remain committed to strengthening our differentiated high-quality content ecosystem. In June and July, we leveraged the World Cup buzz to launch our native IP, Kuaishou World Cup Fans Trophy. Beyond covering trending topics, we launched original events, including the Kuaishou X.Y.Style FC and Dream Chasers Youth Football Tournament. Through trend-driven operations, engaging interactions and community co-creation, we built a sports hub where Kuaishou users could participate. These activities generated 68.2 billion impressions and 360 million cumulative live stream views. We also continued innovating our copyrighted content partnerships using a joint-operation model to deliver more high-value content to users. We used an e-commerce live streaming model to secure live broadcasting rights for 2026 CBA season. We also introduced a paid live streaming model for online music performance. In April, we hosted the TOP concert, generating over RMB 10 million in sales, achieving a synergy between content and commercialization. This model also driven grassroots sports events, achieving a notable regional scale, especially in Northwest China. Third, online marketing services. In Q2, revenue from online marketing services 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 AI applications across the full marketing services lifecycle. In Q2, the content consumption, lifestyle services and AI applications continued to drive year-on-year growth in our non-e-commerce marketing services revenue. In content consumption, AI lowered production costs and reduced creation barriers, driving rapid short play supply growth that a cater to a broader user preferences. This enriched our content ecosystem and boosted the related marketing demand. By June, short-play supply on Kuaishou, both live action and AI generated had grown over fivefold from January. In Q2, short-play-driven marketing spend grew over 100% year-over-year. In lifestyle services, we deepened our presence in sub-verticals like comprehensive and local services while exploring incremental growth opportunities. We also optimized the deep conversion capabilities, enhanced the full stack lead-driven marketing solutions and launched a user cohort exploration AI agent. These efforts helped clients to more effectively identify high-intent 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 the user retention and conversion. This further strengthened our competitiveness in capturing ad 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' core needs. We also took a content supply side approach by managing marketing materials, including incentivizing first launch content and increasing recommendation diversity. These initiatives optimized the e-commerce marketing material content mix, enabling high-quality content to reach relevant traffic more efficiently and improving our long-term commercial ecosystem. Despite the macro and merchant challenges, we remain committed to traffic support for high-quality merchants. The T2000 brand initiative launched in Q4 last year has delivered a promising early results. Brand merchant marketing spend outperformed our broader e-commerce marketing in Q2. Its revenue contribution continued to grow. At the product level, our Net Transaction ROI product continued to evolve. By enhancing omni-scenario transaction bidding capabilities and refining bidding mechanisms and model strategies, client penetration rose from 45% in Q1 to 55% in Q2, effectively helping merchants reduce return rates. In Q2, we continued optimizing AI applications across industry-specific scenarios, improving clients' marketing placement efficiency and strengthening our capacity to capture incremental marketing budgets across sectors. In content consumption through content understanding, user matching and a smart placement, AI helped quality content reach users more efficiently. In lifestyle services, AI is applied to marketing material generation, digital human live streaming, conversational business operations, user intent identification and deep conversation prediction. These help merchants lower costs across content creation, placement and customer services. Number 4, 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, strengthened brand and new merchant acquisition and their growth drove synergies between e-commerce and commercialization. During the quarter, we focused on growing high-quality buyers, while active paying users remained largely stable quarter-over-quarter, as the users' omni-domain consumption habits continue developing, we strengthened our private-domain advantages by aligning traffic across diverse scenarios. This enabled content-driven product recommendation, shelf-based conversion, store repurchases to reinforce one another in a positive growth cycle. We also enhanced cross-scenario synergies and optimized the subsidy efficiency, driving balanced growth across content-based and pan-shelf-based scenarios. On the supply side, in Q2, we continued onboarding new merchants and advancing brand expansion through cost reduction, efficiency improvement, growth incentives, product empowerment and operational support. We helped new and small and medium-sized merchants grow while further improving our merchant mix. We launched our upgraded Starlight Initiative, offering tiered support programs for brand merchants, large merchants, industrial zone merchants and SME merchants, helping more merchants 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 30% year-over-year, reflecting continued improvements in new merchant quality. On the brand merchant 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 brand commercialization also grew rapidly year-over-year, further boosting brand merchants contribution to the -- both overall e-commerce GMV and online marketing revenue. By industry, leveraging content-based e-commerce trends, merchants counts in tea, alcohol and health products, beauty and cosmetics and fresh food continue growing, unlocking structural growth opportunities. We continue to improve our KOL ecosystem and structure, enhancing content supply quality. We deepened collaboration with the top-tier KOLs, increasing support for mid-tier KOLs in our strong verticals like Three Rural and anime and improved the consistency of existing KOLs performance, reinforcing our e-commerce content foundation. By integrating KOL resources with distinctive product offerings nationwide, we deepened our penetration in industry zones and launched content marketing initiatives like product origin, tracking, live streams. These efforts strengthen the synergy content and supply, empowered KOLs and improved merchants conversion. We also expanded our KOL base through in-platform incubation, talent agency partnerships and external acquisition. To boost the streaming frequency, we refined our incentive policies. In Q2, the number of streamers with over 10,000 followers grew year-over-year, while KOL streaming frequency continued to increase steadily. On the distribution pool development, we leveraged AI to enhance product capabilities, creating a more targeted system, further boosting the vibrancy of our distribution system. In Q2, active KOLs distribution penetration continued rising year-over-year and merchant KOL merchants matches grew over 20% year-over-year. In Q2, throughout the full lifecycle of merchants, we continued to optimizing AI capabilities across e-commerce scenarios, helping merchants reduce costs, 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 used our free AI business tools across product selection and listing, marketing material creation, business analysis, smart placement and AI-powered customer service. These AI tools provided merchants with end-to-end operation support and capability enhancements. Next, our live streaming business. Q2 live streaming revenue reached RMB 8.7 billion. We focused on supply side health and leverage AI to empower live streaming products, driving ecosystem quality and product innovation. On the supply side, we launched the Confluence Initiative, providing streamer acquisition incentives, early-stage growth support and 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 encouraged the top streamers to expand into group [ 5 ] a live formats leveraging their traffic and influence to enrich high-quality live streaming content supply. On the product and technology front, AI further empowered live streaming rooms powered by Kling AI. AI gifts with customizable special effects continue to evolve, offering more formats and capabilities and boosting users' willingness to pay. In Q2, AI gifts sent by users passed 6 million. AI-driven content understanding continued optimizing our live streaming recommendation strategies, enabling more precise matching between streamers and users, supporting paying users growth. Intelligent live-streaming gift recommendation and ranking features based on real-time multimodal signals improved users' payment experience and efficiency. AI tools like AI Interaction Assistants and Digital Avatars Solution will further refine improving streamers service efficiency. Finally, our overseas business progress. In Q2, we remain committed to high-value growth strategies, strengthening our overseas foundation and profitability, long-term operation and localization. On traffic and content, we maintained refined user acquisition, enhanced 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 capitalized on major events such as Festa Junina and World Cup, driven by AI, in-depth ROI analysis, user group insights, innovative product features and industry-specific strategies. We helped marketing clients capture key marketing periods and achieve rapid growth. We also unlocked the monetization potential in short plays and other content formats. Together with our marketing services capabilities, this formed the dual-engine growth model while accelerating expansion into growth sectors such as e-commerce. Our e-commerce GMV and order volume continued solid year-over-year growth in Q2. At the same time, we drove growth in average order value through product mix optimization and quality supply while maintaining solid operational efficiency and profitability. Looking ahead to second half, amid the growing external challenges, we remain steadfast in advancing our core AI strategy, leveraging our technological and ecosystem strength to navigate headwinds. While we face short-term revenue pressure and heavy investments -- AI investment, we will maintain our long-term focus and continue expanding the commercial exploration of AI to empower Kuaishou's 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'll hand it over to Jin Bing, who will review the company's financial update for the second quarter.

[Interpreted] Thank you, Yixiao, and hello, everyone. In Q2, we continue to deeply integrate AI technologies across our business scenarios. As a result, we achieved high-quality growth throughout our overall business amid a complex environment. The comprehensive application of AI has become an engine driving the company's long-term development. It continued to empower our content ecosystem, enhance user experience, our providing merchants and advertisers with end-to-end intelligent business operation tools. For our platform partners, these capabilities helped 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 Kling AI business. Online marketing services revenue increased 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 and online marketing services, 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 Kling AI achieved breakthroughs in model capabilities, continuous product enhancements and deeper penetration across professional creative scenarios as commercialization continued strong -- maintain strong growth momentum. In Q2, our live streaming revenue was RMB 8.7 billion. We consistently cultivated high-quality content, leverage AI-powered product innovations and enhance the quality of our ecosystem to develop rich and healthy live streaming ecosystem and diverse high-quality content. Cost of revenue increased 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 above, our gross profit was RMB 18.3 billion in Q2 compared to RMB 19.5 billion in the same period last year. Gross profit margin was 51.6% compared to 55.7% in the same period last year. Turning to expenses. In Q2, selling and marketing expenses were RMB 9.9 billion compared to RMB 10.5 billion in the same period last year. Selling and marketing expenses decreased to 27.9% to of total revenues from 30% in Q2 last year, primarily attributable to the lower spending for promotional activities. R&D expenses increased 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 training costs. Administrative expenses were RMB 895 million compared to RMB 897 million in the same period last year, remaining relatively stable year-over-year. Group level 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 restricted cash totaled RMB 121.3 billion as of June 30, 2026. Net cash generated from operating activities in Q2 was RMB 5.9 billion. Additionally, we actively leverage and deliver on our commitment to shareholder returns based on market conditions. As of today, we have repurchased approximately HKD 1,970 million or around 43.3 million shares, representing about 1% of our total shares outstanding for 2026. Looking ahead to the second half, as Yixiao mentioned, amid external challenges, we expect to face near-term challenges as pressure on revenue and our continued investment in AI, both weigh on profitability. We will continue to uphold our technology revenue user-centric philosophy while maintaining deeply focused on our users' needs. We remain committed to advancing AI and leveraging 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 efficiency. This will further strengthen the company's core competitiveness mode 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 scenarios 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 Kling 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 2025, we introduced the world's first Multimodal Visual Language interaction architecture MVL. In December 2025, we released the world's first omni-model-based multimodal video generation model. Our track record has consistently proven that the Kling 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 storyboard capabilities, enabling users to achieve precise and coherent creative expression. In terms of visual 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 4K videos 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 AI video generation segment as model capabilities continuously iterate product experience continues to improve in the professional creator ecosystem and commercialization scenarios 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 development?

[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 AIGC 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 ROIs 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 closed loop. 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, A/V testing and monitoring metric attribution and post-launch review. This process relied heavily on manual 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 iteration efficiency and the performance of our recommendation strategies. In terms of organizational efficiency improvement and organizational enablement, our in-house developed agent tools, including MyFlicker, 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 code 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 merchants 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 bringing 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-driven merchants already rich in organic traffic, needed sustainability above all. We have since 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, we continue tiered targeted support for brands large merchants, industry zone merchants and SMBs, maintaining policy stability and continuity while ensuring more precise resource allocation. Meanwhile, we deeply integrated AI capabilities into merchants' daily operations and cost management across areas such as marketing material creation, intelligent marketing, intelligent after-sales services and AI powered customers service. This helped merchants reinvest into more productive growth initiatives. This year, brands and industry zones remained our two 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, AI 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-operated to GMV from brands to overall GMV increased steadily. While the share of marketing spend from brand merchants and total marketing spend also grew steadily. On the industry zone side, we leveraged a service providers to deepen our presence across industries zones nationwide and empower local merchants. This year, we have gradually rolled out this model in regions, including Inner Mongolia, Yunnan, Shandong, and Jiangsu 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 Kuaishou and scale their businesses. Looking ahead to the second half, we believe the overall consumer demand will continue its 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 profile merchants 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 tiered market -- a 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 growth 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, will face 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 content consumption sector, led by Short Plays, we believe that this market still has room to grow. AI continues to reshape the supply side of a short plays segment. Significantly reducing production costs and shortening production cycles while enabling a broader range of genres, content formats and [ richer ] supply. In 2025, the number of comic style short plays episodes on Kuaishou was 60,000, and we expect this number to reach 500,000 in 2026. Going forward, we expect the industry to gradually shift from quantity expansion to content quality improvement. Meanwhile, the value of short plays content ecosystem has become increasingly evident with the daily impressions on Kuaishou short plays reaching 230 million in July 2026. The monetization model for short plays has also evolved. In-app ads account for an increasingly larger share indicating that short plays are gradually developing into an ecosystem-based business model that combines content consumption value with incremental marketing inventory. Looking ahead, content formats could potentially extend beyond the traditional viewing into areas such as IP adaptation 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 of verticals, 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 game content with marketing budgets to unlock more monetization potential. 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 ROI, 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 content 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 conversion efficiency of our advertising system. For example, through better understanding of marketing materials 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 placement ROI, driving operational efficiency improving and commercialization growth for our clients.

The last question will come from Yuan Liao of Citic.

[Interpreted] After Kling finished its financing, what is the impact on Kuaishou's cash flow? And looking forward to the second half year, what is your plan for cash flow expenditure and the total cash flow situation?

[Interpreted] After the completion of 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 remaining firmly committed to investing in our AI strategy, we have steadily enhanced shareholder returns. We expect the total shareholder returns 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 discipline while maintaining a robust and healthy cash position. Harnessing our resilient financial structure as the cornerstone, 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.]