Kuaishou Reports Softer Profit Amid Rising AI Investments

By Jason Chau

Kuaishou Technology posted sharply lower quarterly earnings amid a surge in its capital expenditure.

First-quarter net profit for China's second-largest short-video platform slid 27% from a year earlier to 2.91 billion yuan, equivalent to $428.8 million. Adjusting for share-based compensation expenses and net fair-value changes on investments, profit fell 26%, the company said Wednesday.

Meanwhile, revenue increased 3.4% to 33.72 billion yuan. By segment, revenues from its online marketing services and live streaming businesses rose 9.2% and fell over 13%, respectively, while revenue from other services rose nearly 16%.

The platform reported 1.2% growth in average daily active users to 412.7 million from the same period last year.

Kuaishou said the revenue growth was largely due to expansion in its online marketing services and Kling AI businesses. It attributed the decline in profitability to higher revenue-sharing costs, increased research and development spending, and a jump in selling and marketing expenses.

The results were better than market expectations. The consensus forecast from a poll of 20 analysts by VisibleAlpha called for net profit to slide 32% from the same period last year, while expecting revenue to rise 2.5%.

Market sentiment toward Kuaishou has weakened since the start of the year, with its share price falling more than 29% so far this year.

Intensifying competition in China's internet sector, particularly from short-video rival ByteDance, has raised investor concerns over the company's free cash flow and revenue growth prospects.

The company's core e-commerce business has also been weighed by tax policy changes in China and broader macroeconomic headwinds, Citi analysts said in a recent note.

Investors have been closely watching its AI video and image generator, Kling, which has become an increasingly important part of Kuaishou's business but remains at an early stage of monetization. The Beijing-based company had previously signaled much of its planned 26 billion yuan capital spending for the year would be allocated to Kling.

Kling's revenue exceeded 650 million yuan in the first quarter, more than quadrupling from the prior-year period, Kuaishou said.

In this segment, Kuaishou also faces intense competition from ByteDance, which launched its latest AI video model, Seedance 2.0, earlier this year. To differentiate its offering, Kling is seeking to focus on business and professional users instead, the Citi analysts said.

The company is planning to restructure the AI video unit, which could involve spinning it off and listing it in Hong Kong at a potential valuation of $20 billion.

Analysts said a spinoff would help remove Kuaishou's earnings dilution from its Kling investments, allowing its core business to be rerated.

However, the valuation Kling is seeking looks stretched, as the compute-intensive nature of video AI generation implies a longer path for the business to break even, Morningstar analyst Ivan Su said.

"While Kling may create long-term shareholder value, it is too early to underwrite a USD20 billion valuation," Su added.

Write to Jason Chau at jason.chau@wsj.com

(END) Dow Jones Newswires

May 27, 2026 05:47 ET (09:47 GMT)