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KINGSOFT CORP(3888.HK)：HIGH EXPECTATION ON AI MONETISATION AND CLOUD NEEDS SOME RESET
Ge Long Hui·2025-05-30 10:11

Core Viewpoint - Kingsoft reported weak 1Q25 results, with revenue and net income missing estimates significantly, attributed to slowdowns in online gaming, office businesses, and unexpected declines in Kingsoft Cloud margins and profits, alongside high R&D expenses in AI and games [1][2]. Group 1: Financial Performance - 1Q25 revenue grew 9% YoY to RMB2.3 billion, missing BOCIe and consensus estimates by 9% and 6% respectively, primarily due to sluggish office business growth of 6% YoY [3]. - Gross profit margin (GPM) dipped 1.9 percentage points QoQ to 82.1%, also a miss, driven down by the games business which saw a GPM decline of 5.7 percentage points QoQ due to rising channel costs for new games [3]. - Operating profit margin (OPM) declined 13.9 percentage points QoQ, mainly due to increased R&D expenses, which rose by 9 percentage points QoQ [3]. - Net income remained flat YoY, missing BOCIe and consensus estimates by 36% and 31% respectively [3]. Group 2: Gaming Segment - Revenue from the gaming segment increased 14% YoY to RMB1,037 million but declined 20% QoQ, missing BOCIe estimates by 5% [4]. - The gaming business has been normalizing since the peak in 3Q24, attributed to lifecycle declines in older IP games and hit titles [4]. - Upcoming game Mecha BREAK is anticipated to be a potential catalyst, having peaked at 5th on Steam's global wishlist during testing, with a global release targeted for July 2025 [4]. Group 3: Office Segment and AI Monetization - Office revenue grew 6% YoY but declined 13% QoQ to RMB1,301 million, with WPS individual revenue rising 11% YoY to RMB857 million, driven by user base expansion [5]. - WPS 365 revenue surged 63% to RMB151 million, fueled by digitalization demand from private enterprises and local SOEs [5]. - The management is developing a foreign version of WPS for the overseas market, with updates expected in June 2025, but faces challenges in AI monetization due to the availability of free AI tools [5].