Kuaishou announced 1Q26 results: total revenue was up by 3% YoY to RMB33.7bn, largely in line with Bloomberg consensus estimate. During the period, adjusted net profit declined by 26% YoY to RMB3.37bn, mainly due to the increase in AI-related investment, but 11% ahead of the consensus estimate mainly due to higher-than-expected other income/gains. Kling AI maintained strong monetization momentum, with 1Q26 revenue up by over 300% YoY to RMB650mn. For 2Q26E, we forecast total revenue to increase by 1% YoY, primarily driven by Kling AI contribution and online marketing services. We trim our FY26-28E earnings forecasts by 1-3% in view of the step-up of AI investment, and lower our SOTP-derived TP to HK$70.5 (previous: HK$80.0). That said, we remain upbeat on Kuaishou’s AI business, which should drive sustainable revenue growth and valuation recovery of the company. Maintain BUY.
Steady core commercial businesses. By segment in 1Q26: 1) online marketing revenue grew by 9% YoY to RMB19.6bn (58% of total revenue), with domestic online marketing revenue up by over 10% YoY. Non-ecommerce marketing services revenue maintained healthy growth of c.10% YoY, driven by solid ad budget growth of the content consumption, lifestyle service and AI application sectors; 2) other services revenue was up by 16% YoY to RMB5.6bn (17% of total revenue), primarily fuelled by the robust growth of Kling AI business. E-commerce GMV also maintained healthy YoY growth, mainly underpinned by enriched product supply; 3) live streaming revenue fell by 13% YoY to RMB8.5bn (25% of total revenue). Looking ahead, we expect total revenue to grow by 1% YoY in 2Q26E, with online marketing/others/live streaming revenue +6%/+10%/-14% YoY.
Strong AI business momentum. 1) Kling AI revenue exceeded RMB650mn in 1Q26, up by over 300% YoY. The annualized revenue run rate (ARR) of Kling AI reached c.US$500mn in Mar 2026, more than doubled vs. US$240mn ARR in Dec 2025, thanks to the launch of Kling AI 3.0 model in Feb 2026. We now expect Kling AI revenue to grow by over 200% YoY to c.RMB3.6bn in FY26E. 2) On monetization front, generative recommendation and intelligent bidding models drove 3%–4% growth in domestic marketing revenue in 1Q26; OneSearch V2, a generative search framework, drove c.3% incremental GMV growth in the e-commerce search scenario. 3) Kuaishou also leveraged its proprietary coding tool, CodeFlicker, to drive its internal AI-generated code penetration to over 50%.
Stepping up AI investment. Overall GPM declined by 3.4ppts YoY to 51.2% in 1Q26, primarily due to the increase in revenue sharing costs, bandwidth expenses and depreciation expenses related to AI products. Adjusted net margin also dropped by 4.0ppts YoY to 10.0% in 1Q26. Looking ahead, Kuaishou will continue to invest in AI and we expect adjusted NPM to decrease by c.5ppts YoY to 11% in 2Q26E. The company also plans to increase its shareholder return yield to c.4% in FY26E.
Our SOTP-derived target price of HK$70.5 comprises, per share:
1) HK$5.7 for the live streaming business, based on 0.6x 2026E EV/Sales, which is on par with the average EV/Sales for its peers.
2) HK$26.4 for the online marketing business (excl. e-commerce marketing), based on 18x 2026E EV/EBIT, which is on par with the average EV/EBIT for its peers.
3) HK$35.8 for the e-commerce business, based on 0.08x 2026E EV/GMV. The target multiple is a discount to the average EV/GMV for its peers (0.14x 2026E EV/GMV), given the relatively low monetization level of Kuaishou’s e-commerce business.
4) HK$2.6 for net cash.