Global Mobile Penetration And AI Will Fuel Digital Integration

Key Takeaways

• Rapid advances in AI and super-app convergence uniquely position Kuaishou for dominant monetization, operational efficiency, and industry-leading profitability across its ecosystem.
  
• Early international momentum and targeted partnerships support significant global expansion potential, driving further user growth and broadening monetization opportunities.
  
• Intensifying regulation, global expansion barriers, rising costs, content fatigue risks, and uncertain AI investment returns may threaten sustained revenue growth and margin stability.

Catalysts

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

• While analyst consensus acknowledges Kling AI as a growth driver for content creation and monetization, they underestimate Kling AI's potential to become a global standard infrastructure for video creation across multiple industries, unlocking exponential commercial opportunities and driving long-term revenue acceleration far beyond current forecasts.
  
• Analysts broadly agree that AI-powered advertising and content recommendation will boost engagement and ad revenue, but this likely understates the compounding effects of Kuaishou's rapidly increasing user time spent and continuously enriched behavioral datasets, which could sharply raise ad yield and propel net margins to industry-leading levels as personalization and targeting improve at scale.
  
• Kuaishou's international expansion is just gaining traction, but with a first-ever profitable quarter overseas, targeted content partnerships, and rapid engagement growth in markets like Brazil, the company is poised for a much larger global user and advertiser base, which can deliver a step-change in topline revenue and sustained earnings growth as rising mobile penetration drives adoption.
  
• The accelerating shift towards multi-format (short video, live streaming, shopping) and super-app convergence positions Kuaishou to dominate the entire interactive content, commerce, and local services value chain, capturing share from less integrated platforms and driving both greater monetization per user and expanded ecosystem profitability.
  
• Advances in AI-powered operational efficiency-spanning cost reduction in content moderation, lower merchant support costs, and seamless automated e-commerce-could unlock structural improvements in net margins and free cash flow, significantly enhancing long-term shareholder value even as top-line growth re-accelerates.

Kuaishou Technology Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Kuaishou Technology compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Kuaishou Technology's revenue will grow by 13.0% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 11.7% today to 19.0% in 3 years time.
• The bullish analysts expect earnings to reach CN¥35.7 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 bullish analyst cohort, the company would need to trade at a PE ratio of 13.6x 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

• Increasing regulatory scrutiny and potential content censorship in China and internationally could lead to stricter platform controls, higher compliance costs and reduced ability to monetize certain types of content, putting long-term pressure on Kuaishou's top-line revenue and net earnings.
  
• Geopolitical tensions and emerging digital decoupling may restrict Kuaishou's ability to expand overseas, especially in markets outside China, limiting further international revenue diversification and constraining the company's long-term growth in total revenues.
  
• Rising user acquisition costs and the necessity to increase marketing spend to sustain user growth in a crowded and competitive market, as described by ongoing "traffic support" and "subsidy initiatives," are likely to erode net margins and pressure overall profitability over time.
  
• Reliance on short-form video and entertainment-based engagement risks exposing Kuaishou to consumer fatigue and evolving digital habits, particularly if users shift toward new interactive or immersive platforms, threatening user growth and weakening advertising and e-commerce revenues.
  
• The company's heavy and persistent investment in AI, while currently driving operational benefits, could create long-term risk if monetization growth from these initiatives does not sufficiently outpace rising R&D and personnel expenses, leading to margin contraction and less robust net profit growth.

Valuation

• The assumed bullish price target for Kuaishou Technology is HK$98.04, which represents two standard deviations above the consensus price target of HK$79.09. 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 bullish 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 bullish analysts, you'd need to believe that by 2028, revenues will be CN¥187.5 billion, earnings will come to CN¥35.7 billion, and it would be trading on a PE ratio of 13.6x, assuming you use a discount rate of 8.5%.
• Given the current share price of HK$74.8, the bullish analyst price target of HK$98.04 is 23.7% higher.
• 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.