Kuaishou's 1Q26 results were broadly in line with expectations, and accelerating Kling ARR may reshape the valuation narrative

Overview

This report is Goldman Sachs' review of Kuaishou Technology 1024.HK's 1Q26 results. The report believes Kuaishou's first-quarter profit was broadly in line with expectations. The main platform's advertising and e-commerce businesses faced weak consumption, tax-related impacts, and subsidy pressure, but the overall trend remained within market expectations. The key highlight is the rapid expansion of Kling AI's annualized revenue scale; its model upgrades, API and professional-user demand, and potential financing or spin-off could shift the market from valuing the traditional main platform to placing greater emphasis on sum-of-the-parts valuation for its AI assets.

Core views

Goldman Sachs maintains its Buy rating but lowers the target price from HK$74 to HK$70. Positive factors include continued stable growth on the main video platform, with buybacks and dividends totaling nearly 4% helping support the share price; Kling also continues to achieve rapid ARR growth amid intensifying competition and may further expand its commercialization potential after upgrades to multimodal output capabilities. Negative factors include a weaker outlook for the advertising business, softer livestreaming revenue due to the company's proactive tightening of operating discipline, and increased AI-related investment weighing on profits. Overall, the core conclusion of the report is that the main platform provides a valuation floor, while Kling offers an upside narrative and potential re-rating space.

Analysis framework

The report uses cross-validation through modest earnings forecast revisions, target-price valuation based on P/E, and SOTP segment valuation. For the main platform, Goldman Sachs mainly applies a target P/E multiple to average 2026-27E EPS; for Kling, it uses P/ARR multiple sensitivity analysis combined with year-end ARR assumptions to assess potential standalone value. The report also reverse-engineers the main platform P/E and Kling valuation implied by the current share price to show that the market may not yet be fully pricing in Kling's growth potential.

Methodology notes

• Valuation methodsP/E valuation

  Applying a 15x target P/E to Goldman Sachs' average 2026-27E EPS to derive the 12-month target price.

  This is the core method used in the report to arrive at the HK$70 target price. The Buy rating is maintained, but downward earnings revisions make the target price lower than the previous HK$74.

• Valuation methodsSOTP cross-check

  Separately valuing Kuaishou's main platform and Kling AI to test the segment values implied by the current share price and target price.

  The report believes the current share price around HK$45 roughly implies about 7x P/E for the main platform and assigns only about US$5bn to US$5.8bn of value to Kling; Kling could drive a re-rating if growth continues.

• Valuation methodsP/ARR sensitivity analysis

  Using 10-25x P/ARR for Kling and conducting sensitivity valuation based on end-2026E ARR of US$1bn.

  This method indicates Kling's potential valuation is about US$10-25bn; the body text also mentions a range of about US$10-26bn, well above the value implied by the current share price.

• Factor frameworkGS Factor Profile

  Comparing the stock with the market and industry peers across four dimensions: Growth, Financial Returns, Multiple, and Integrated.

  This framework is Goldman Sachs' standard factor profile disclosure used to provide investment context, rather than the main driver of this target-price change.

Asset mapping & comparison

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

• Kuaishou Technology (1024.HK)

  The Hong Kong-listed company covered in this report.

  Strengths

  The main video platform is still growing, advertising growth is comparable to or slightly better than the industry, and buybacks plus dividends totaling nearly 4% can support the current share price.

  Weaknesses

  Advertising growth is slowing, e-commerce take rate and subsidy pressure are rising, livestreaming revenue is weak, and AI investment is weighing on profits.

  Comparison

  Relative to the advertising industry and e-commerce peers, Goldman Sachs believes Kuaishou's advertising growth is still in line with or slightly faster; however, compared with double-digit growth a year ago, the growth rate has clearly stepped down.

  Risks

  Weak macro consumption, tax-related impacts, subsidy pressure, earnings below expectations, and uncertain returns on AI investment.

• Kling AI

  Kuaishou's AI video generation business and the most important source of incremental valuation in the report.

  Strengths

  ARR approached US$500mn at the end of March and is expected to reach about US$600-700mn in 2Q; both API usage and professional consumer usage are driving growth, with application scenarios including advertising, short dramas or film production, and gaming.

  Weaknesses

  Competition comes from peers such as Seedance, maintaining model competitiveness requires higher capital expenditure, and ROI still needs to be validated.

  Comparison

  Goldman Sachs believes Kling remains at the SOTA video model level; if valued at 10-25x P/ARR, its potential value is significantly higher than the value implied for Kling by the current share price.

  Risks

  Kling monetization coming in below expectations, model upgrades falling short of expectations, intensifying AI competition, and uncertainty around financing or spin-off progress.

Key data

• 12-month target priceHK$70.00Lowered from the previous HK$74, while maintaining the Buy rating.
• Current share priceHK$45.28The report-disclosed price corresponds to an implied upside of 54.6%.
• 1Q26 core advertising revenue+9% yoyAdvertising growth slowed but is still considered not weak relative to the industry and e-commerce peers.
• 1Q26 operating profit-15% yoyMainly affected by higher depreciation and amortization resulting from increased AI investment and capital expenditure.
• Kling ARRapproaching US$500mnAs of the end of March, and it continued to show upward momentum entering 2Q26.
• Kling 2Q ARR expectationabout US$600-700mnGoldman Sachs believes Kling remains at the SOTA video model level and continues to enjoy strong momentum.
• Kling end-2026E ARRUS$1bnUsed for P/ARR sensitivity valuation.
• Kling valuation sensitivityabout US$10-25bnBased on 10-25x P/ARR and US$1bn end-2026E ARR.
• Market capitalizationHK$193.1bn / US$24.6bnDisclosed in the report's Key Data.
• Enterprise valueHK$175.7bn / US$22.4bnDisclosed in the report's Key Data.
• 3-month average daily turnoverHK$2.5bn / US$320.3mnDisclosed in the report's Key Data.
• 2026-28E net profit revision-4% to -7%Reflects additional AI-related investment.

Impact & implications

For investors, the short-term valuation support for Kuaishou comes from stable growth on the main platform, share buybacks, and dividend returns; the medium-term re-rating potential comes more from accelerated Kling commercialization, model upgrades, and potential financing or a spin-off. The lower target price indicates that AI investment is weighing on earnings in the short term, but the maintained Buy rating suggests Goldman Sachs believes the narrative shift and valuation elasticity brought by Kling are sufficient to offset the impact of slower core business growth.

Risks

• Kling monetization is weaker than expected.
• User engagement growth is below expectations, especially the combined metric of DAU multiplied by time spent per user.
• Profitability is below expectations, especially if AI investment and depreciation and amortization continue to weigh on profits.
• AI progress is weaker than expected, with model upgrades or multimodal capabilities failing to deliver sufficient incremental commercialization.
• Advertising, livestreaming, and e-commerce businesses are dragged down by weak macro consumption, tax-related impacts, and subsidy pressure.

What to watch

• Major Kling model upgrades in the next 1-2 months, especially multimodal output capabilities.
• Whether Kling 2Q ARR reaches about US$600-700mn, and whether year-end ARR approaches US$1bn.
• Any progress in Kling financing or a potential spin-off, which could drive separate market valuation.
• Whether the main platform's advertising revenue can maintain mid-single-digit year-over-year growth for the rest of the year.
• The impact of e-commerce take rate, merchant and KOL subsidies, and tax-related headwinds on platform revenue.
• The impact of AI capital expenditure, depreciation and amortization, and inference-layer gross margin on net profit and ROI.