Regulatory Hurdles And Chinese App Bans Will Restrict Global Reach

Key Takeaways

• Intensifying regulations, user privacy concerns, and geopolitical risks threaten Kuaishou's growth, profitability, and ability to expand internationally.
  
• Evolving consumer preferences and saturated markets increase pressure on Kuaishou to innovate or risk declining user engagement and shrinking revenue streams.
  
• Accelerated AI integration, expanding e-commerce and global operations, and improved user retention position the company for diversified, sustainable, and profitable long-term growth.

Catalysts

An investment holding company, provides live streaming, online marketing, and other services in the People’s Republic of China.

• The ongoing trend of intensifying global digital privacy regulations threatens to severely restrict Kuaishou's data collection and personalization capabilities, undermining user engagement, ad targeting, and revenue growth, while simultaneously increasing compliance costs and eroding net margins over the long term.
  
• Escalating geopolitical tensions and the potential for further deglobalization raise the risk of more countries imposing restrictions or outright bans on Chinese-origin apps, directly curtailing Kuaishou's international user expansion and jeopardizing future topline growth from overseas markets.
  
• With growing public and regulatory scrutiny surrounding the mental health impacts of social media platforms, Kuaishou faces persistent risks of increased user churn, tighter domestic and global regulation, and diminishing advertising growth opportunities, which would lead to stagnation or decline in both revenue and net profit.
  
• As user acquisition costs remain high and domestic markets become saturated, Kuaishou's margins and overall profitability are likely to be compressed, particularly as rising competition and regulatory headwinds in live streaming and virtual gifting threaten stability in key revenue streams.
  
• Rapid shifts in consumer media preferences towards generative AI-driven, immersive AR/VR content could disrupt user engagement on traditional short-video platforms, leaving Kuaishou exposed to long-term declines in retention, revenue, and earnings if it fails to keep pace with evolving industry standards and user expectations.

Kuaishou Technology Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more pessimistic perspective on Kuaishou Technology compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts.
• The bearish analysts are assuming Kuaishou Technology's revenue will grow by 9.6% annually over the next 3 years.
• The bearish analysts assume that profit margins will increase from 11.7% today to 13.6% in 3 years time.
• The bearish analysts expect earnings to reach CN¥23.3 billion (and earnings per share of CN¥nan) by about August 2028, up from CN¥15.2 billion today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 13.8x on those 2028 earnings, down from 19.5x today. This future PE is lower than the current PE for the HK Interactive Media and Services industry at 19.5x.
• Analysts expect the number of shares outstanding to decline by 0.7% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 8.5%, as per the Simply Wall St company report.

Kuaishou Technology Future Earnings Per Share Growth

Risks

• Rapid ongoing integration of AI technology across Kuaishou's business segments has improved user engagement, operational efficiency for merchants, and advertising conversion rates, suggesting the potential for higher revenue and net margin expansion over time.
  
• E-commerce and local services businesses are experiencing strong double-digit GMV growth and surging merchant participation, with AI-powered tools lowering costs and boosting operational efficiency, which could drive continued topline and profit growth.
  
• Kuaishou's overseas business delivered its first profitable quarter, with revenue up more than 30% year-over-year and steady DAU increases in key international markets; this successful overseas expansion could support diversified long-term revenue growth.
  
• The company's innovative and iterative AI product development (such as Kling AI and marketing automation) has attracted both consumer and enterprise customers, driving high renewal rates, rapid ARPU increases, and potential for AI to serve as a second growth curve, fueling future revenue and earnings.
  
• Reduction in user acquisition costs, record-high user engagement and retention metrics, and steady expansion of premium live streaming and short-form content ecosystems collectively point to a resilient and expanding user base, which could support sustainable revenue growth and robust profit margins.

Valuation

• The assumed bearish price target for Kuaishou Technology is HK$65.17, which represents the lowest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Kuaishou Technology's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of HK$99.92, and the most bearish reporting a price target of just HK$65.17.
• In order for you to agree with the bearish analysts, you'd need to believe that by 2028, revenues will be CN¥171.1 billion, earnings will come to CN¥23.3 billion, and it would be trading on a PE ratio of 13.8x, assuming you use a discount rate of 8.5%.
• Given the current share price of HK$74.8, the bearish analyst price target of HK$65.17 is 14.8% lower. Despite analysts expecting the underlying buisness to improve, they seem to believe the market's expectations are too high.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.