ab 22 August 2025 Global Research Kuaishou's Q225 was a beat on both revenue and bottom line, mainly driven by better than expected e-commerce revenue and operating leverage (see our quick take). We largely maintain our 2025E forecasts post results. Key takeaways 1. AI: Kling's Q2 revenue of Rmb250+m, up 67+% QoQ, was a c30+% beat to UBSe/ consensus. We lift 2025E Kling revenue to Rmb1bn (cUS$140m). Mgmt. noted Kling revenue growth will mainly be driven by new version launches and expect more upsides in use ...

Kuaishou Technology (1024.HK) Earnings Review Summary Company Overview - **Company**: Kuaishou Technology - **Ticker**: 1024.HK - **Market Cap**: HK$305.9 billion / $39.2 billion - **Industry**: Technology, specifically in the areas of Games, Entertainment, and Healthcare Tech Key Financial Highlights - **2Q25 Performance**: - Sales increased by 13% year-over-year (yoy) - Profit rose by 20% yoy, exceeding expectations by 10% [1] - Core business revenue from advertising and eCommerce commissions grew by 14% yoy, with Gross Merchandise Volume (GMV) up 18% yoy [1] - **Annual Revenue Target**: - Kuaishou raised its annual revenue target for Kling to $125 million for FY25, up from $100 million [4] - **Earnings Estimates**: - Revenue estimates for 2025-2027 have been increased by 1-4% due to better-than-expected livestreaming and eCommerce commission revenue [19] - EPS estimates for 2025-2027 raised by 4-5% [19] AI Investment and Outlook - **AI Commitment**: - Kuaishou plans to double its capital expenditures related to AI and expand team resources throughout the year [17] - The company is focused on enhancing model capabilities and expanding use cases rather than solely pursuing revenue growth [17] - **Kling AI Revenue**: - Expected to ramp up quickly, reaching a total of $154 million in 2025 [24] - Anticipated revenue growth driven by expanding paying users [28] Market Performance - **Share Price Movement**: - Share price has increased by 40% since the 1Q result in late May, reflecting higher AI expectations and overall valuation [3] - Current trading at a forward P/E of 12X, indicating attractive risk-reward potential [3] Competitive Landscape - **Core Business Growth**: - Kuaishou's core business is outpacing industry growth, with a projected 13% yoy growth in advertising for the second half of the year [17] - Domestic business expected to remain solid despite potential impacts from changes in Brazil's payment policy affecting overseas marketing [17] Risks and Considerations - **Key Risks**: - Slower-than-expected recovery in ad budgets - Weaker-than-expected monetization of Kling - Growth of user engagement base - Lower-than-expected profitability - Weaker-than-expected progress in AI [20] Valuation and Target Price - **Target Price**: - Revised target price for Kuaishou is set at HK$77, up from HK$68, based on a higher 13X 2026E P/E [19] - **Valuation Metrics**: - Projected revenue growth of 11.8% in 2024, with EBITDA growth of 44% [12] - Expected net income margin of 14% for FY25 [21] Conclusion - Kuaishou Technology is positioned well within the competitive landscape, with strong growth in its core business and significant investments in AI. The company’s revised financial targets and positive market performance suggest a favorable outlook for investors.

Core Viewpoint - The article discusses the development of Sketch3DVE, a novel method for 3D scene video editing that allows users to manipulate videos using simple sketches, enhancing creativity and personalization in video content creation [3][22]. Part 1: Background - Recent advancements in video generation models have significantly improved text-to-video and image-to-video generation, with a focus on precise control over camera trajectories due to its important application prospects [6]. - Existing methods for video editing are categorized into two types: one directly uses camera parameters as model inputs, while the other constructs explicit 3D representations from single images to render new perspective images [8][9]. - Despite these advancements, editing real videos with significant camera motion remains a challenge, as video editing requires maintaining original motion patterns and local features while synthesizing new content [8][9]. Part 2: Algorithm Principles - Users begin by selecting the first frame of a 3D scene video, marking the editing area with a mask and drawing a sketch to specify the geometry of new objects [12]. - The system employs the MagicQuill image editing algorithm to process the first frame, generating the edited result, and utilizes the DUSt3R algorithm for 3D reconstruction to analyze the entire input video [13]. - A 3D mask propagation algorithm is designed to accurately transfer the mask from the first frame to subsequent frames, ensuring consistency across different perspectives [14]. - The final video generation model integrates edited images, multi-view videos, and original input videos to produce a scene-edited video with precise 3D consistency [14]. Part 3: Effect Demonstration - The method allows users to create high-quality 3D scene video edits, enabling operations such as adding, removing, and replacing objects while maintaining good 3D consistency [16]. - The approach can handle complex scenarios involving shadows and reflections, producing reasonable editing results due to training on real video datasets [17]. - Users can also edit the first frame using image completion methods, demonstrating the versatility of the system in generating realistic 3D scene video edits [19]. - Sketch3DVE offers an effective solution to traditional model insertion challenges, allowing for personalized 3D object generation and high-fidelity scene video editing without requiring extensive expertise [22].

Summary of Key Points from the Conference Call Industry Overview - The conference call focuses on the **China Internet** industry, particularly the **AI applications** sector and its dynamics in July 2025, highlighting trends in **cloud service providers (CSP)** and **AI model performance**. Core Insights and Arguments 1. **Chip Supply Dynamics**: - The evolving dynamics of Nvidia's H20 chip supply are crucial, with potential resumption of chip sales to China being discussed. This could lead to a significant increase in CSP capital expenditures (capex), projected to rise by **42% quarter-over-quarter in 3Q25** from a likely low in 2Q25 [1][1][1]. 2. **AI Model Launches**: - Continued launches of foundation models are noted, with performance gaps between US and Chinese models narrowing. OpenAI's GPT-5 launch is mentioned, but new models from Chinese platforms like Zhipu's GLM-4.5 and Alibaba's Qwen are showing competitive performance [1][1][1]. 3. **Annual Recurring Revenue (ARR) Trends**: - Monthly ARR trends for popular AI video generation models are highlighted, with **80% of China's AI ARR generated from overseas**, despite only capturing **5% of the total global AI applications revenue**. Key applications include video generation and image editing [1][1][1]. 4. **Engagement Trends**: - There is a noted **6% month-over-month decline** in engagement for consumer-facing AI chatbots in July, attributed to increased integration of AI functions into super-apps. Specific apps like DeepSeek and Doubao saw declines of **10% and 13% month-over-month**, respectively [1][1][1]. 5. **Enterprise AI Adoption**: - The adoption of AI by Chinese enterprises is accelerating, with token usage increasing by **404% and 284% year-over-year** for AI-native apps and in-app AIs, respectively. Notably, **66% of the top 30 AI apps** are developed by major internet companies: Alibaba, Baidu, ByteDance, and Tencent [6][6][6]. 6. **Mobile App Engagement**: - Overall engagement across the top 400 mobile apps increased by **6% year-over-year** in July 2025, with significant growth in Weixin and Douyin app engagement, which grew by **6% and 19% year-over-year**, respectively [7][7][7]. 7. **E-commerce and Local Services**: - E-commerce engagement grew by **14% year-over-year**, with JD and Taobao showing strong growth rates of **76% and 11% year-over-year**. Local services engagement also accelerated to **18% year-over-year** [11][11][11]. 8. **Gaming Engagement**: - Gaming engagement increased by **3% year-over-year** in July, with specific titles like Tencent's DnF mobile maintaining stable time spent shares [10][10][10]. Additional Important Insights - The report emphasizes a more defensive investment strategy due to weaker profit setups in transaction platforms, particularly in e-commerce and local services [10][10][10]. - The competitive landscape for AI applications is evolving, with significant implications for gaming and video generation due to advancements in multi-modal AI models [1][1][1]. - The report includes detailed statistics on the performance of various AI applications, highlighting the competitive positioning of companies like Kuaishou and ByteDance in the AI video generation space [36][36][36]. This summary encapsulates the key points discussed in the conference call, providing insights into the current state and future outlook of the China Internet and AI applications industry.

Summary of Conference Call Notes Industry Overview - The conference call discusses the outlook for digital media companies in China, specifically focusing on Kuaishou, Tencent Music Entertainment (TME), Bilibili, and Baidu. - The second quarter of 2025 (2Q25) is expected to show continued growth momentum in video and music platforms, with livestreaming GMV recovering from lows, while Baidu's Search continues to lose market share [1][2]. Company-Specific Insights Kuaishou (TP raised to HK$85) - Kuaishou is projected to achieve 4-5% platform growth, with a resumption of GMV growth for e-commerce and continued CPM growth, indicating revenue acceleration into the second half of the year [2][19]. - Tracker data shows a 20% acquisition in 2Q, suggesting a full-year number higher than the previous $100 million forecast [2]. - The target price (TP) has been raised to HK$85 based on a 13x forward multiple, reflecting improved long-term earnings expectations [7][19]. Tencent Music Entertainment (TP raised to $25) - TME is expected to deliver results that modestly beat estimates, with strong QoQ ARPU growth of approximately 10% [3][41]. - The focus is on future plans, particularly the potential synergies from the Ximalaya acquisition, which could create a new phase for the stock [3][41]. - The TP has been raised to $25, reflecting a three-year synergy creation roadmap worth at least $5 per share [7][41]. Bilibili (TP set at $28) - Bilibili is expected to have inline results with continued CPM improvement and strong MAU growth, but limited content monetization and a slow gaming cycle may hinder strong upside [4][9]. - The focus for the second half of the year will be on game commentary and potential revenue from upcoming releases [4]. Baidu (TP set at $90) - Baidu's results are expected to disappoint, with further downward revisions to Search revenue due to the removal of ad space and lack of monetization efforts [5][8]. - The company is shifting focus to video ads, but there are concerns about their effectiveness given the current consumer mind share [5]. Key Financial Metrics - Kuaishou's revenue is projected to grow approximately 11.5% in 2025, with a non-GAAP operating profit expected to improve by 25% YoY [10]. - TME's revenue is expected to show around 15% growth, with a focus on ARPU uplift and synergies from the Ximalaya deal [10]. - Bilibili's revenue is anticipated to grow in the high teens, while Baidu's revenue is expected to decline by a low single digit percentage [10]. Additional Insights - Kuaishou's MAU has improved, with a mid-single-digit YoY increase, driven by new downloads and stable retention rates [22][23]. - TME's core user base remains stable, but competition from other music platforms is increasing, leading to a decline in less engaged users [44]. - The advertising revenue growth for Kuaishou is strongest in categories like education, local services, and mini-dramas, with some categories seeing growth rates of 20-35% YoY [30][32]. Conclusion - The digital media landscape in China is showing signs of growth, particularly for Kuaishou and TME, while Baidu faces challenges in monetizing its Search product. - The focus for the second half of 2025 will be on product development and monetization strategies across these platforms, with varying degrees of success anticipated.

Core Viewpoint - The article discusses the viral success of an AI-generated video featuring rabbits on a trampoline, which garnered over 500 million views on TikTok, highlighting the increasing sophistication of AI-generated content and its potential to deceive viewers [2][7][25]. Group 1: AI Video Generation - The AI-generated video was initially mistaken for real footage due to its low-resolution, mimicking night vision surveillance, which naturally obscured its flaws [28][30]. - The video’s subject matter, featuring animals in a quirky scenario, contributed to its appeal and likelihood of being shared [33][34]. - The rapid advancement of AI video generation technology has led to outputs that can closely resemble real-life footage, making it challenging for viewers to discern authenticity [35][39]. Group 2: Viewer Perception and Reactions - Many viewers were fooled by the video, with some believing it to be real surveillance footage, showcasing the public's struggle to differentiate between AI-generated and real content [14][25]. - The article notes that while most AI-generated videos can still be identified as fake, the specific characteristics of this video allowed it to bypass scrutiny [25][36]. - The phenomenon has sparked concerns about the implications of AI-generated content, particularly regarding misinformation and the ability to distinguish between real and fake [24][40]. Group 3: Technical Insights - The article speculates that the AI tool used for the video is likely Veo3, based on the physical understanding and presentation of the generated content [21]. - It mentions that the current leading AI video tools, such as Veo3 and Kling, have limitations on video length, typically not exceeding 10 seconds [42]. - The article provides tips for identifying AI-generated videos, suggesting viewers check for AI-related tags and consider the typical duration of such content [40][41].

Summary of Key Points from the Conference Call Industry Overview - **Industry Focus**: China Internet and AI Services - **Overall Industry View**: Attractive outlook for the China Internet sector, particularly in AI applications and services [3][4][19] Core Insights - **AI Adoption**: - 18% of enterprise workload is expected to be replaced by AI within three years [20] - Rapid enterprise adoption of AI is noted, but monetization of AI applications may lag behind [14][19] - **Investment Trends**: - Major players in the industry are ramping up capital expenditures (capex) on AI technologies [8][27] - Total capex by top internet players is projected to reach Rmb 383.768 billion by 2030 [25] - **Consumer and Enterprise AI Demand**: - Consumer usage of AI is projected to grow from Rmb 5.801 million in 2023 to Rmb 555.975 million by 2030, reflecting a compound annual growth rate (CAGR) of 39% [25] - Enterprise AI software spending is expected to increase significantly, with projections of Rmb 249.860 billion by 2030 [25] Company-Specific Insights - **Tencent**: - Strong visibility in consumer AI monetization, particularly through advertising [34][39] - Daily active users (DAU) for Yuanbao, Tencent's AI assistant, are ramping up, integrating AI into WeChat [41] - Long-term annual ad revenue from Video Accounts is estimated to reach Rmb 50 billion [47][50] - **Alibaba**: - Alicloud revenue is expected to double in three years, indicating strong growth potential [52] - Facing near-term earnings pressure due to intense competition in food delivery and quick commerce [56][62] - **Baidu**: - Limited visibility in core advertising turnaround, with core revenue under pressure [92][100] - Ernie Bot has seen significant user growth, with plans for further enhancements in AI capabilities [100][102] - **Meituan**: - Intense competition in the food delivery sector is expected to lower long-term profitability [62][75] - Quick commerce market share is projected to be split among multiple players, impacting profitability [75][78] - **PDD Holdings**: - Strong momentum for Temu, with expectations of GMV growth of 45% year-over-year to US$77 billion in 2025 [114][116] Market Dynamics - **Competition**: - The food delivery market is experiencing aggressive competition, with significant investments from major players like JD and Alibaba [74][75] - Price wars are leading to unsustainable practices, prompting regulatory scrutiny [74][75] - **E-commerce Growth**: - The e-commerce market in China is projected to continue expanding, with online retail sales growing by 6.3% year-over-year in 2Q25 [103][104] Additional Insights - **AI Model Development**: - Major Chinese tech firms are developing proprietary AI models and integrating them into their platforms, enhancing their competitive edge [9][10] - **Consumer Behavior**: - Increased consumer engagement with AI applications is expected to drive growth across various sectors, including e-commerce and social media [25][27] This summary encapsulates the key points discussed in the conference call, highlighting the trends, company-specific insights, and market dynamics within the China Internet and AI services sector.

Core Viewpoint - Kuaishou is expected to report a decline in net profit for Q1 2025, with potential challenges in its e-commerce and advertising business due to competition and market uncertainties [1] Group 1: Financial Performance Expectations - Kuaishou's net profit for Q1 2025 is projected to decrease by 6.1% to 3.87 billion RMB [1] - Adjusted net profit is anticipated to grow by 3.2% to 4.53 billion RMB [1] - Revenue is expected to increase by 9.6% to 32.24 billion RMB [1] Group 2: Business Segment Insights - E-commerce growth is a key focus, with potential pressure from competitors like Douyin reducing merchant commission rates [1] - The outlook for e-commerce and advertising businesses is uncertain due to tariff uncertainties and increased competition [1] Group 3: AI Monetization Updates - Kuaishou's self-developed video generation tool, Kling, has generated over 100 million RMB in revenue since its commercialization as of February 2025 [1] - The launch of Kling AI 2.0 in April has improved video generation capabilities [1]

Core Viewpoint - Morgan Stanley believes that China's Generative AI (GAI) development is at the beginning of its second phase, with Alibaba positioned as a key player in the Infrastructure as a Service (IAAS) value chain, likely to outperform peers in this phase and potentially benefit from the third phase of applications [2][3]. Phase Summaries - **Phase 1**: Development of large language models (LLMs), focusing on building and optimizing LLMs [5]. - **Phase 2**: Application of GAI in existing applications and services, currently at the beginning stage where companies are exploring value creation models [6]. - **Phase 3**: Surge in internet service consumption as GAI applications become widespread, leading to significant financial gains for internet operators [7]. - **Phase 4**: Emergence of native GAI "killer applications" that will fundamentally change market competition and introduce new business models [8]. Infrastructure as a Service (IAAS) Insights - The report highlights that companies in the IAAS value chain will perform well in the second phase of GAI development, with revenue expectations likely to be positively revised. Alibaba is identified as the most promising stock in this area [11][12]. - Tencent, while holding a significant market share in China's IAAS, is viewed more as a beneficiary of AI applications rather than a primary player in the IAAS space [12][13]. Other Key Players - **Kuaishou**: Identified as an undervalued AI beneficiary, with expectations that AI will significantly enhance user engagement and monetization capabilities. The AI video/image generator Kling is projected to have over 6 million users by December 2024, indicating substantial monetization potential in various commercial verticals [15]. - **Baidu**: Positioned as both an IAAS cloud value chain player and a potential GAI application beneficiary. The company's stock outlook is contingent on the transformation of its core advertising and cloud business narratives [16].

Kuaishou Technology Research Summary Company Overview - **Company**: Kuaishou Technology - **Industry**: Internet and Digital Entertainment in China - **Current Price (as of Feb 28, 2025)**: HK$50.60 - **Price Target (Dec 2025)**: HK$70.00, indicating an Overweight rating [1][4][38] Core Insights - **AI Potential**: Kuaishou is viewed as a significant beneficiary of AI advancements, particularly after the launch of DeepSeek, which is expected to enhance user engagement and monetization on its main app [1][38] - **Kling AI**: Kuaishou's AI video/image generator, Kling, has over 6 million users as of December 2024 and is anticipated to create synergies with the Kuaishou app, offering monetization opportunities across various sectors such as eCommerce and professional content production [1][38] - **User Base**: Kuaishou boasts a loyal user base of 400 million daily active users (DAU), spending an average of 2 hours daily on the app, which is currently under-monetized compared to competitors [1][38] Financial Performance - **Share Price Performance**: Kuaishou's share price has underperformed the HSTECH index by 55% since January 2024, primarily due to competitive pressures from Douyin and Tencent Video Account [1][38] - **Revenue Growth**: The company is projected to achieve a revenue CAGR of 10% from 2025 to 2027, with its core business (ads and eCommerce) expected to grow at a faster rate of 13% CAGR during the same period [20][21] - **Earnings Estimates**: Adjusted EPS is forecasted to grow from Rmb 4.09 in 2024 to Rmb 4.52 in 2025, with a 20% EPS CAGR anticipated for 2026-2027 [5][38] Competitive Landscape - **Market Position**: Despite competitive concerns, Kuaishou's unique content ecosystem and loyal user base provide a strong foundation for growth. The company’s ads/eCommerce revenue per DAU is estimated to be only half of Douyin's level, indicating significant room for monetization improvement [1][38] - **External Marketing Services**: Kuaishou's external marketing service revenue grew approximately 30% in Q3 2024, driven by a surge in short play advertisers, and is expected to continue growing [25][38] Risks and Challenges - **Competitive Pressures**: Ongoing competition from Douyin and Tencent Video Accounts poses risks to Kuaishou's market share and monetization capabilities [40][41] - **Regulatory Risks**: Potential regulatory scrutiny and measures aimed at protecting teenagers could impact content and user engagement [40][41] - **Execution Risks**: There are concerns regarding the execution of Kuaishou's strategies, which could adversely affect performance [40][41] Conclusion Kuaishou Technology is positioned to leverage its AI capabilities and loyal user base to enhance monetization and drive growth. The company's current valuation presents an attractive investment opportunity, despite competitive and regulatory challenges. The upcoming 4Q24 earnings report is anticipated to provide further insights into the impact of AI on Kuaishou's core app and Kling [1][38].