No advertising + AI blessing, Kingsoft Office has a new story

Original: Ou Yujiao

Source: Big Model House

In the latest financial report released by Kingsoft Office, the performance has grown steadily, and it has entered the large-scale model track following the hot trend of ChatGPT, and launched the new product WPS AI, which has not been “affected” by the continued downturn in the global PC and mobile phone markets…

On the evening of August 22, office software and service provider Jinshan Office officially announced the 2023 semi-annual report data. The report shows that in the first half of 2023, Kingsoft Office achieved double growth in revenue and net profit. Among them, operating income was 2.172 billion yuan, a year-on-year increase of 21.25%; net profit attributable to owners of the parent company was 599 million yuan, a year-on-year increase of 15.32%; net profit attributable to owners of the parent company after deducting non-recurring gains and losses was 576 million yuan, a year-on-year increase 39.88%, the profitability continued to improve.

Image source: Kingsoft Office 2023 semi-annual report

It is worth noting that in the performance announcement, in addition to the figures, Kingsoft Office focused on “several aspects”. And the mystery behind it, we may be able to analyze it based on the latest financial report.

De-advertising to retain customers, the subscription business ranks first in revenue

In Jinshan Office’s 2023 semi-annual report, monthly activities have become a bright spot.

The data shows that as of June 2023, the number of monthly active devices of Kingsoft Office’s main products is close to 584 million, of which WPS Office PC version has 253 million monthly active devices, leading other domestic office software; WPS Office mobile version has 327 million monthly active devices; other products of the company have monthly active devices close to 500 Ten thousand.

Kingsoft Office emphasized: In order to optimize user experience and pursue higher growth quality, Kingsoft Office continues to adjust the direction of Internet advertising business, actively reduces the number of advertising spaces and the frequency of pushes, focuses on improving the quality of clicks, and minimizes interference to users, thereby promoting advertising. The business has gradually and steadily shrunk.

Such behavior has brought positive significance to the performance of Kingsoft Office. During the reporting period, the overall revenue of Jinshan Office subscription business was 1.67 billion yuan, a year-on-year increase of 35%. Revenue accounted for 77%, an increase of 8 pct year-on-year.

In terms of business, the income of this business showed a development trend of “double increase” and “double decrease”. Among them, both subscription businesses achieved year-on-year growth (that is, domestic personal office service subscription business revenue was 1.25 billion yuan, a year-on-year increase of 33.24%; domestic institutional subscription and service business revenue was 420 million yuan, a year-on-year increase of 40.38%); domestic institutional authorization business Internet advertising and other business income showed a downward trend. The former earned 360 million yuan, a year-on-year decrease of 13.96%; the latter earned 140 million yuan, a year-on-year decrease of 41.15%.

Image source: Kingsoft Office 2023 semi-annual report

It can be seen that the continued downturn in the global PC and mobile phone markets has not had a significant impact on the performance of Kingsoft Office. At the same time, the essential reason for the decrease in Internet advertising revenue is an active choice made out of long-term considerations.

Contract liabilities have shrunk for the first time, and growth pressure has increased significantly

In fact, although Jinshan Office has not been affected by the “big environment” for the time being, there are various signs that its growth in the first half of the year has obviously weakened.

First of all, the sales expenses of Kingsoft Office have soared sharply. During the reporting period, the sales expenses of Kingsoft Office reached 476 million yuan, a substantial increase of 33.66% year-on-year, much higher than the revenue and profit growth in the same period. This means that the difficulty of market expansion has increased significantly, and the efficiency of marketing promotion has decreased significantly.

At the same time, with the growth of various businesses, Kingsoft Office’s performance in the capital market in the first half of the year also attracted attention.

According to the announcement, at the end of June this year, CUIYAN, the senior executive and financial director of Beijing Jinshan Office Software Co., Ltd., announced that due to his own capital needs, he planned to reduce his holdings of the company’s shares through centralized bidding. 2475 shares, accounting for no more than 0.0005% of the company’s total share capital.

In addition to the shareholder reduction, Kingsoft Office is deeply involved in the vortex of infringement lawsuits. The case has been accepted by the Beijing Intellectual Property Court. Although the trial has not yet been held, it will still have an unpredictable negative impact on the brand of Kingsoft Office.

In addition, even though Jinshan Office achieved a revenue of 2.172 billion yuan and a year-on-year growth of 21.25% in the first half of this year, there are still hidden worries behind the scenery.

Image source: Kingsoft Office 2023 semi-annual report

An important point that cannot be ignored is that if the factor of contract liabilities is considered, the dehydration performance growth rate of Kingsoft Office is actually only maintained at single digits.

The big model home understands that under normal circumstances, software companies are accustomed to using contract liabilities as a “reservoir” for future revenue recognition. Trends in revenue and profits.

A financial practitioner told Big Model House that the concept of contract liabilities appeared around 2018, and it is usually recommended to treat this indicator and revenue as an indicator for getting through. This is not only predictable in the future, but also avoids it in a practical sense Risk of book performance manipulation by software companies based on contract liabilities.

The data shows that Kingsoft Office’s contract liability balance at the end of 2023H1 was 1.703 billion yuan, a decrease from 1.731 billion yuan at the beginning of the year. At the same time, if “revenue + change in contract liabilities” is used as the dehydration performance caliber, the actual growth rate of dehydration revenue in Jinshan Office’s 2022 annual report is only 9.61%, which is far lower than the book’s 21.25%. This means that this situation not only represents the first time in its traceable history, but also shows that it has a tendency to be adversely affected by this indicator.

WPS AI consolidates industry competition barriers and builds an AI moat

At the beginning of 2023, the wave of AIGC and ChatGPT is coming, which further proves the future development and imagination space of artificial intelligence, and the strategy of “multi-screen, cloud, content, AI, collaboration” also provides Kingsoft Office with the future industry direction .

In March this year, Zhang Qingyuan, CEO of Kingsoft Office, said in an interview with the media that the company has a dedicated AI algorithm and engineering team, and has already started AIGC research and the application of large models, and will focus on content generation, BI and other form applications, formatting, etc. The Kingsoft AI team led by Yao Dong was actually established in 2017.

During the reporting period, Kingsoft Office released WPS AI, an intelligent office assistant based on a large language model, and positioned it as an application party of a large language model, anchoring AIGC (content creation), Copilot (smart assistant), and Insight (knowledge insight). Develop in a strategic direction, and bring the results of AI’s first landing in the domestic office software field to users. He also emphasized that it will fully embrace the AI revolution and consolidate its technological advantages.

In terms of overseas business, Kingsoft Office continued to cultivate the number of users with large desktop screens on the basis of solid mobile terminal advantages; it took the lead in launching WPS Office AI products, and started public testing overseas. With AI comprehensively enhancing overseas product capabilities and experience, increasing user usage frequency and brand influence, overseas business is expected to form a new long-term commercial growth point.

The AI basic matrix based on office industry experience, content resources, complete API experience and data processing capabilities is the basic disk for Kingsoft Office to embrace AI, and it is also the moat for Kingsoft Office’s AI transformation.

This point can be found just by looking at the figures of R&D investment.

Image source: Kingsoft Office 2023 semi-annual report

According to public data, Jinshan Office’s R&D investment in the first half of the year was 717 million yuan, an increase of 11.42% year-on-year, and the R&D expense ratio was about 33%. The total number of R&D personnel was 2,832, accounting for about 66% of the total number of employees. The “leading” R&D investment in the industry will also continue to inject stable momentum into Kingsoft Office’s AI development.

It is worth noting that after the big model home obtained the internal test qualification last month, Lightspeed conducted a real test on WPS AI.

Through actual measurement, Big Model House found that if WPS AI can make targeted adjustments according to the information and materials provided by users during the beautification process, it will become an important eye-catching point of AI assistants.

At the same time, although the “comprehensiveness” of the display provides weight for the comprehensiveness of WPS, in practical applications, high-quality innovations in content and form are more “practical” than “two or three things” based on big data.

Image source: wps

Undoubtedly, the current WPS AI successfully combines artificial intelligence technology with office needs, providing users with a brand new office experience. In the process, it may encounter a lot of tests such as “privacy” and “copyright”. Therefore, how to make use of the first-mover advantages of artificial intelligence outlets to create greater commercial value has become an urgent problem to be solved.

In the longer term, as a major carrier of AI commercialization, WPS is undoubtedly a highlight in the digital age and has positive significance for the entire large model application side. After all, only with the “bringing doctrine”-based on the “universal artificial large model” and revitalizing the “silent assets”-huge monthly activity and number of users, can the ultimate goal of commercialization be sustainable for long-term development.