Kuaishou announced 3Q25 results: total revenue increased by 14% YoY to RMB35.6bn, in line with Bloomberg consensus/our estimate; adjusted net profit grew by 26% YoY to RMB4.99bn, 3/2% ahead of consensus/our estimate, primarily due to enhanced operating efficiency. Revenue from Kling AI exceeded RMB300mn in 3Q25 (+c.20% QoQ), beating our expectation again. Kuaishou highlighted several concrete data points on how AI empowers advertising and e-commerce businesses (e.g. driving additional 4-5% growth in domestic ad revenue), which reinforces our constructive views on Kuaishou’s AI development. Looking into 4Q25E, we forecast total revenue to increase by 10% YoY, mainly driven by the solid growth of online marketing and e-commerce businesses. We slightly raise our FY25-27E earnings forecast by 0-2% to reflect better-than-expected efficiency gains. We roll forward our valuation window to FY26E and raise our SOTP-derived TP to HK$88.0 (previous: HK$84.0). Maintain BUY.
Solid core business revenue growth. By segment in 3Q25: 1) online marketing revenue grew by 14% YoY to RMB20.1bn (57% of total revenue), mainly supported by the AI-enhanced ad targeting and incremental ad budget from lifestyle services & content consumption sectors. Kuaishou combined local services with the lead-based marketing business in 3Q25, which further strengthens its positioning to capture more ad budget from local merchants; 2) other services revenue was up by 41% YoY to RMB5.88bn (17% of total revenue), 4% ahead of consensus estimate, primarily thanks to the solid e-commerce business and Kling AI revenue contribution. E-commerce GMV increased by 15% YoY to RMB385.0bn, mainly fuelled by the improved repeat-purchase frequency and user stickiness; 3) live streaming revenue was up by 3% YoY to RMB9.57bn (27% of total revenue). Looking into 4Q25E, we expect total revenue to grow by 10% YoY, with online marketing/others/live streaming revenue +13%/+22%/-3% YoY respectively.
AI empowers all business lines. 1) Kling AI’s revenue exceeded RMB300mn in 3Q25, and management now expects the full-year revenue to reach US$140mn in FY25 (c.RMB1bn, 1% of total revenue). 2) Online marketing: leveraging AI models such as OneRec, Kuaishou has driven an additional 4-5% growth in domestic online marketing service revenue in 3Q25. 3) E-commerce: the company launched OneSearch, generative retrieval architecture that allows more precise product matching, driving c.5% growth in shopping mall search order volume.
Margin expansion on efficiency gains. Adjusted NPM rose by 1.3ppts YoY to 14.0% in 3Q25, mainly attributable to the enhanced efficiency and operating leverage. The company also leverages AI in coding, content review and customer services to improve operating efficiency. Due to AI investment, management expects FY25E capex to grow by mid-to-high double-digit % YoY. Despite the step-up of investment, management remains confident on the YoY expansion of adjusted OPM in FY25E.