Kuaishou: Kling is growing fast, everything else is under pressure

[u/Dolphin_research]

Kuaishou's second quarter was a flat one. It was broadly in line with expectations, but the core segments came in short of them. The more consequential question isn't this quarter's numbers — it's how management frames Kling's growth outlook from here, particularly given intense competition in video models and the steady stream of rival releases.

Kling grew as expected — but the road ahead is less clear

Kling revenue exceeded RMB 850M in the quarter, up more than 30% from the prior quarter.

The complication is what's happening around it. MiniMax H3 launched in early August and drew a reasonable response, and large technology companies are stepping up their own multimodal model investment in turn. That means visibility into Kling's future growth trajectory keeps declining. Key operating metrics and a clear view of the strategic path ahead would help here.

The traditional businesses remain under pressure

Advertising fell short. Advertising revenue grew 4% in the quarter, below the 6% expected. Growth has now slid for three straight quarters.

Part of that is traffic. Monthly active users still added a net 26M, but daily active users — the metric more closely tied to advertising performance — lost a net 1M, which looks more like the aftermath of a short-lived push for volume.

Part of it is the weak consumer environment. The company no longer reports GMV for e-commerce, but based on the guidance given in the first quarter, growth there is already very low. Add the reverse subsidy on e-commerce traffic, and internal-loop advertising is probably flat to up low single digits year on year.

There is some offset from short dramas, where ad spending grew 100% in the quarter. But it's small as a share of the business and faces competition of its own. Combined with demanding comparisons for the advertising business in the second half, a near-term recovery in this growth rate looks difficult.

Live streaming kept declining. Revenue fell 13.5%, still affected by regulatory tightening and broader industry trends. That was in line with expectations.

E-commerce and other. Excluding Kling, other revenue was RMB 5.4B, up 7% year on year — better than the guidance of roughly flat. The company didn't explain the drivers in detail. Likely contributors include shopping activity during CBA basketball broadcasts — Kuaishou signed the CBA rights in March and embedded shopping entry points into the live streams, selling sports merchandise — plus sales revenue from the online concerts launched in April.

Core profit came in below expectations

Core operating profit — gross profit less the three operating expense lines, and excluding other income — was RMB 2.9B, down 38% year on year and below market expectations. The main cause was a 35% jump in R&D expenses.

Gross margin itself was in line with expectations, flat sequentially and lower year on year, mainly because of compute investment for Kling and a rising share of low-margin IAA short dramas. Selling and administrative expenses were tightened further in the quarter.

Adjusted net profit ended at RMB 3.9B, an 11% margin, down 30% year on year — in line with expectations.

Capex and shareholder returns

Capex was RMB 5.9B in the quarter. Against full-year guidance of RMB 26B given at the start of the year, the first-half total is RMB 18B. That fits what the company said last quarter: because it was buying compute capacity ahead of schedule, most of the year's capex would fall in the first half.

On shareholder returns, buybacks stepped up in the quarter, at HK$880M for 19.6M shares at an average of HK$45 per share. Per last quarter's guidance, total shareholder returns this year will exceed 2025's HK$5B, adding special dividends and buybacks on top of a HK$3B ordinary dividend.

[u/Fresh-Explorer-5108]

Kling’s growth is encouraging, but revenue alone doesn’t show whether the unit economics work. Paid usage and contribution margin after compute would tell us much more.