Kuaishou Technology (01024) Report Interpretation

Overview

Nomura reviews Kuaishou's 2Q26 results and concludes that the company's operating outlook is deteriorating more rapidly than previously expected. The report highlights a sharp reversal in e-commerce expectations, weaker advertising and live-streaming trends, and sustained investment requirements for Kling, while identifying Kuaishou's large cash balance as the principal offset.

Core views

Kuaishou's 2Q26 results were broadly in line with expectations, but the underlying profitability trend weakened. Revenue was CNY35,535mn, up 1% year on year and 5% quarter on quarter, broadly matching consensus and Nomura estimates. Gross profit fell 6% year on year to CNY18,328mn, while gross margin declined 4.1 percentage points year on year to 51.6%. Non-IFRS operating profit fell 32% to CNY3,708mn and its margin contracted 5.0 percentage points to 10.4%. Non-IFRS net profit declined 30% to CNY3,913mn, although it rose 16% sequentially. The revenue mix also showed divergent trends: online marketing services grew 4% year on year to CNY20,639mn, live streaming fell 13% to CNY8,690mn, and e-commerce and other services rose 19% to CNY6,206mn. Despite the reported quarterly growth in e-commerce and other services, management's latest guidance led Nomura to reverse its 2H e-commerce GMV forecast. The institution now expects GMV to decline 9-10% year on year, compared with its previous forecast of 6-9% growth. Management attributed the deterioration to a soft macroeconomic environment, a difficult comparison base created by the trade-in program and tighter tax levies on e-commerce merchants. Nomura believes these pressures affect the broader market but argues that larger peers such as Alibaba and JD are better positioned to withstand the downturn. Company-specific competitive pressure compounds the macro headwinds. Nomura says competition from Douyin and Tencent-backed Video Accounts has reduced Kuaishou user time spent. Because advertising and commerce monetization depend heavily on engagement, weaker user attention transmits directly into revenue pressure. Nomura consequently forecasts a 5% year-on-year decline in 2H advertising revenue, a sharp deceleration from average growth of 6.8% during 1H. The report also views the 13% year-on-year contraction in 2Q live-streaming revenue as evidence that another core business is weakening. Kling remains strategically promising but is unlikely to provide near-term margin relief. The AI video-generation product generated CNY850mn of revenue in 2Q, and management guided for 3Q revenue to remain stable quarter on quarter. Nomura considers Kling a top-tier product, but believes ByteDance's Seedance is a formidable rival and that the latest Seedance 2.5 iteration has widened its lead. To remain competitive, Kuaishou may need to sustain heavy spending on specialist talent and computing capacity for longer than the market expects, extending margin pressure beyond 2026. Nomura has therefore made substantial forecast reductions. FY26F revenue was cut 7% to CNY138,240mn and FY27F revenue was cut 10% to CNY139,176mn. The institution now models revenue growth of negative 3% in FY26F and positive 1% in FY27F. Gross-profit forecasts were reduced by 11% and 17%, with projected gross margins lowered to 50.3% for FY26F and 48.6% for FY27F, respectively 2.4 and 3.6 percentage points below the prior estimates. Non-GAAP operating-profit forecasts were reduced 58% to CNY7,105mn for FY26F and 75% to CNY4,314mn for FY27F, taking the corresponding operating-margin forecasts to 5.1% and 3.1%. The FY26F and FY27F non-GAAP net-profit estimates were cut by 48% and 62% to CNY8,793mn and CNY6,540mn. Nomura expects those profits to decline 57% year on year in FY26F and another 26% in FY27F. Non-IFRS EPS forecasts were lowered by 48% to CNY2.02 for FY26F and by 61% to CNY1.52 for FY27F. The cash-flow outlook also weakens: forecast free cash flow is CNY7,718mn in FY26F, negative CNY7,920mn in FY27F and positive CNY2,973mn in FY28F. The key financial offset is Kuaishou's large cash position. Nomura calculates net cash of USD13.3bn, including funds held in wealth-management products, equivalent to 64% of the USD20.86bn market capitalization as of 19 August 2026. Kuaishou had returned USD637mn to shareholders year to date, comprising USD252mn of repurchases and USD385mn of declared dividends; the combined amount represented 3.1% of market capitalization. Its outstanding repurchase commitment was another USD921mn, or 4.4% of market capitalization. Given the difficult 2H outlook and recent share-price weakness, Nomura argues that accelerating buybacks could help support the stock. Nomura derives its HKD40 target price through a sum-of-the-parts valuation. It values the core business at USD3.03bn using 3x FY27F P/E. Kling's latest fundraising valuation is USD18bn; Kuaishou's 68% attributable interest is USD12.299bn, which becomes USD9.840bn after a 20% holding discount for a potential spin-off. These components produce total enterprise value of USD12.870bn. The model then incorporates USD13.3bn of net cash with a 30% discount, producing a target market capitalization of USD22.180bn across 4.297bn shares. The resulting HKD40 target implies 23x FY27F P/E or 13x FY27F ex-cash P/E. Nomura maintains Neutral because the cash balance and potential capital returns do not fully offset the faster deterioration in core operations and sustained AI investment burden.

Analysis framework

Nomura first compares Kuaishou's 2Q26 results with year-ago, prior-quarter, consensus and its own estimates. It then combines management's 2H guidance with macroeconomic, tax and competitive factors to revise e-commerce and advertising assumptions. The revised revenue and AI-spending outlook flows through to margins, earnings and cash flow, after which the institution values the core business, Kling and net cash separately under a sum-of-the-parts framework.

Methodology notes

• Valuation methodsSOTP (Sum-of-the-Parts) Valuation

  Sum-of-the-parts valuation

  Nomura values Kuaishou's core business, its attributable interest in Kling and its net-cash balance separately, applies holding and cash discounts, and combines the components to derive the HKD40 target price.

• Valuation methodsP/E and PEG Valuation

  Forward P/E multiple valuation

  The core business is valued at 3x FY27F earnings, while the resulting company-level target corresponds to 23x FY27F P/E or 13x FY27F ex-cash P/E.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Kuaishou Technology (01024.HK)

  The primary covered company faces weakening e-commerce, advertising and live-streaming trends while funding Kling's development.

  Strengths

  Kling is regarded as a top-tier AI video-generation product, and Kuaishou holds USD13.3bn of net cash including wealth-management products.

  Weaknesses

  User engagement and core monetization are under pressure, while prolonged AI spending is expected to compress margins.

  Comparison

  Nomura considers larger e-commerce peers Alibaba and JD better positioned for the downturn and views ByteDance's Seedance as ahead of Kling.

  Risks

  Competition, weaker Kling development and regulatory risks could impede achievement of the target price.

• Alibaba (BABA US)

  A larger e-commerce peer that Nomura believes is better positioned than Kuaishou to withstand the market downturn.

  Strengths

  Greater scale and stronger positioning through the downturn, according to the report.

  Comparison

  Compared favorably with Kuaishou under the shared macroeconomic and merchant-tax pressures.

• JD (JD US)

  A larger e-commerce peer that Nomura believes is better positioned than Kuaishou to withstand the market downturn.

  Strengths

  Greater scale and stronger positioning through the downturn, according to the report.

  Comparison

  Compared favorably with Kuaishou under the shared macroeconomic and merchant-tax pressures.

• Tencent (700 HK) Video Accounts

  A short-video competitor pressuring Kuaishou's user time spent and downstream monetization.

  Strengths

  Tencent backing supports Video Accounts as a significant competitive platform.

  Comparison

  Identified alongside Douyin as a source of engagement pressure on Kuaishou.

• ByteDance

  ByteDance competes with Kuaishou through Douyin in short video and Seedance in AI video generation.

  Strengths

  Nomura believes Seedance 2.5 has widened its lead over competitors including Kling.

  Comparison

  Its products are presented as major competitive threats to both Kuaishou's user engagement and AI ambitions.

Key data

• 2Q26 revenueCNY35,535mnUp 1% year on year and 5% quarter on quarter; broadly in line with consensus and Nomura.
• 2Q26 gross margin51.6%Down 4.1 percentage points year on year and up 0.4 percentage points quarter on quarter.
• 2Q26 non-IFRS net profitCNY3,913mnDown 30% year on year and up 16% quarter on quarter.
• 2H e-commerce GMV forecastDown 9-10% year on yearReversed from Nomura's previous forecast of 6-9% year-on-year growth.
• 2H advertising revenue forecastDown 5% year on yearCompared with average growth of 6.8% in 1H.
• Kling 2Q revenueCNY850mnManagement guided for 3Q revenue to remain stable quarter on quarter.
• FY26F non-GAAP net profitCNY8,793mnCut 48% from CNY17,072mn; forecast to decline 57% year on year.
• FY27F non-GAAP net profitCNY6,540mnCut 62% from CNY17,140mn; forecast to decline 26% year on year.
• Net cash including wealth-management productsUSD13.3bnEquivalent to 64% of market capitalization as of 19 August 2026.
• Year-to-date shareholder returnsUSD637mnUSD252mn of repurchases plus USD385mn of declared dividends, equal to 3.1% of market capitalization.
• Outstanding repurchase commitmentUSD921mnEquivalent to 4.4% of market capitalization.
• Target priceHKD40Reduced from HKD51; implies 23x FY27F P/E or 13x FY27F ex-cash P/E.

Impact & implications

Nomura expects the combination of weaker commerce activity, reduced user engagement and extended AI investment to suppress Kuaishou's revenue growth, margins, earnings and cash generation through FY27F. The large net-cash balance and additional buyback capacity provide valuation support, but the report does not view them as sufficient to offset the operating headwinds, leading it to maintain Neutral and reduce the target price.

Risks

• Stronger-than-expected advertising revenue growth represents upside risk to Nomura's target-price assumptions.
• Better-than-expected e-commerce GMV growth represents upside risk to the forecast.
• Stronger-than-expected grossing growth for Kling AI represents upside risk.
• Intensifying competition from Douyin and other new entrants represents downside risk.
• Weaker-than-expected development of the Kling model represents downside risk.
• Regulatory developments represent downside risk.

What to watch

• Whether 2H e-commerce GMV declines by the forecast 9-10% year on year.
• Whether 2H advertising revenue follows Nomura's forecast 5% decline.
• Kling's 3Q revenue relative to management's guidance for stable quarter-on-quarter performance.
• Kling's competitive progress against Seedance and the duration of talent and computing investment.
• Kuaishou's use of its USD13.3bn net-cash position and progress against its USD921mn repurchase commitment.
• The effect of Douyin and Tencent Video Accounts on Kuaishou's user time spent and monetization.