Kuaishou's Q1 Results: Mixed, Q2 Guidance Broadly Below Expectations

Overview

Nomura Securities issued an earnings commentary covering Kuaishou Technology’s Q1 2026 results and Q2 2026 guidance. Overall, the report characterizes Kuaishou’s Q1 performance as 'mixed': top-line revenue broadly met expectations, but profitability deteriorated across the board. More critically, the company’s Q2 guidance for both revenue and net profit significantly underperformed market consensus, reflecting slowing growth in its core advertising business and margin pressure stemming from AI-related investments. The sole bright spot was its AI video-generation tool, 'Kling', whose rapid revenue growth and promising monetization potential stood out. Nomura maintains its Neutral rating and HKD 57.00 target price, expecting near-term share price pressure but highlighting Kling’s progress as a potential long-term catalyst for valuation re-rating.

Core views

Nomura’s core thesis centers on the tug-of-war between 'near-term pressure' and 'long-term optionality'. On the earnings front, Q1 exhibited pronounced 'revenue growth without profit growth'. Total revenue of RMB 3.37 billion (+3.4% YoY) aligned closely with market expectations, yet non-IFRS operating profit declined 30% YoY to RMB 3.06 billion — notably below consensus of RMB 3.48 billion. The primary drivers behind the profit miss were a gross margin contraction (down 3.4 ppt YoY to 51.2%) and elevated cost pressures. Q2 guidance represents the biggest negative takeaway in this commentary. Management expects total revenue to grow only ~1% YoY, substantially below prior market consensus of 3.5%. By segment: online marketing is guided at 6.0%–6.5% growth, markedly slower than Q1’s 9% and below market expectations of 7%; e-commerce commission revenue is forecast flat YoY, reflecting ongoing impact from KOL support programs on monetization efficiency; live streaming revenue is expected to decline ~14% YoY due to ecosystem governance and compliance initiatives. On the profit side, non-IFRS net profit guidance for Q2 stands at ~RMB 3.9 billion, ~9% below market consensus of RMB 4.3 billion.

Analysis framework

Nomura employs an analytical framework combining 'short-term earnings verification + forward-looking guidance assessment + segmented valuation anchoring'. First, the report benchmarks Q1 metrics against market consensus and Nomura’s own forecasts to quickly identify the central tension — 'revenue met, profit missed'. Next, by deconstructing management’s guidance from the earnings call, the analysis extends the issue into Q2, piecing together the full picture of decelerating growth across individual business segments (advertising, e-commerce, live streaming, AI). On valuation, Nomura applies a Sum-of-the-Parts (SOTP) approach to assess Kuaishou’s current value: valuing the mature e-commerce business at a 12x FY2026 P/E (~USD 26 billion), and Kling AI at a 4x FY2027 P/S (~USD 1.9 billion); aggregating these yields the HKD 57.00 target price. This hybrid valuation — applying P/E to the core business and P/S to AI — directly supports the report’s core narrative of 'valuing current profitability in the near term, while assigning option value to AI in the long term'. The report also notes that the current share price implies an 11x forward P/E, near historical lows.

Methodology notes

• Valuation MethodSOTP Segmented Valuation

  Sum of the Parts Valuation

  SOTP is a method that values distinct business segments separately and aggregates them, particularly suitable for companies with a combination of 'mature businesses + high-growth new ventures'. In this report, Nomura applies a P/E multiple to Kuaishou’s established e-commerce business and a P/S multiple to its emerging Kling AI business, reflecting differences in lifecycle stage and profitability.

• Valuation MethodPE/PEG valuation

  Price-to-Earnings Valuation

  Pricing based on forward 12-month P/E. Nomura assigns Kuaishou’s core e-commerce business a 12x FY26F P/E and notes the current share price implies only an 11x forward P/E — suggesting relatively conservative market valuation. The implied valuation embedded in the target price is '13x FY26F P/E'.

• Industry / Sector Analysis FrameworkVolume-price decomposition

  Decomposing business growth into component drivers

  Nomura dissects revenue growth guidance across advertising, e-commerce, live streaming, and AI to paint a holistic view of overall growth deceleration. This 'segment-level revenue decomposition' is the most widely used methodology in internet company research, enabling readers to pinpoint exactly where growth engines are accelerating or slowing.

• Corporate Fundamentals & Financial FrameworkOperating / Financial Leverage Analysis

  Negative Operating Leverage

  Negative operating leverage occurs when cost and expense growth outpaces revenue growth. In this report, Q1 revenue grew 3.4%, yet gross margin contracted 3.4 ppts and operating profit declined 30% — a clear manifestation of negative operating leverage. Nomura attributes this primarily to increased AI compute investment and rising contribution from low-margin businesses (e.g., short dramas), causing rigid cost growth to erode margins.

• Event-Driven & Behavioral FinanceExpectation Gap / Expectation Management

  Analysis of deviations between actual results/guidance and market consensus

  Nomura repeatedly compares reported data and guidance against 'Bloomberg consensus' and its own forecasts — the core methodology used by sell-side analysts to determine whether outcomes are 'above' or 'below' expectations. Q2 revenue guidance of 1% vs. consensus of 3.5%, and net profit guidance of RMB 3.9 billion vs. consensus of RMB 4.3 billion, constitute a clear negative expectation gap.

Asset mapping & comparison

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

• Kuaishou Technology (1024.HK)

  Direct coverage subject. Near-term profit pressure from advertising deceleration and AI investment; long-term valuation re-rating optionality from Kling AI.

  Strengths

  Rapid monetization progress for Kling AI (Q1 revenue >RMB 650 million; ARR near USD 500 million); online marketing business remains in positive growth territory despite deceleration; overall valuation sits at historical lows (11x P/E).

  Weaknesses

  Slowing core advertising growth; sustained AI compute investment continues to compress gross margin; live streaming and e-commerce businesses face near-term pressure from regulatory oversight and KOL support policies.

  Risks

  Upside risks: advertising growth exceeds expectations, e-commerce GMV accelerates, Kling AI ecosystem expands significantly. Downside risks: intensified competition with Douyin and other entrants, Kling model development lags expectations, regulatory developments increase compliance costs.

Key data

• Q1 Total RevenueRMB 3.3716 billionUp 3.4% YoY, broadly in line with market expectations (RMB 3.3412 billion)
• Q1 Non-IFRS Operating ProfitRMB 3.062 billionDown 30% YoY, below market expectations of RMB 3.484 billion — a ~12% shortfall
• Q1 Gross Margin51.2%Down 3.4 ppts YoY and down 4.0 ppts QoQ
• Q2 Total Revenue Guidance~1% YoY growthSignificantly below market consensus of 3.5% YoY growth
• Q2 Non-IFRS Net Profit Guidance~RMB 3.9 billionBelow market consensus of RMB 4.3 billion; implies net profit margin of ~11%
• Q2 Gross Margin Guidance~51.5%Down 4.2 ppts YoY, driven by AI compute investment and growth of low-margin businesses
• Kling AI Q1 Revenue>RMB 650 millionARR approached USD 500 million as of March 2026; Q2 revenue expected at ~RMB 840 million
• Implied Valuation at Current Market Cap11x FY26F P/ETarget price implies 13x FY26F P/E (including Kling segment valuation); current discount ~15%

Impact & implications

The report concludes that these results and guidance will exert near-term downward pressure on Kuaishou’s share price. The core rationale is that markets had previously held relatively optimistic views on advertising growth and margin stability; however, Q2 guidance — showing advertising growth slowing from 9% to just over 6% and gross margin materially pressured by AI compute investment — will prompt investors to reassess Kuaishou’s ability to balance 'growth and profitability' over the medium term. That said, Nomura emphasizes that Kling AI’s monetization progress remains a significant long-term positive factor that should not be overlooked. Should subsequent model iterations sustain high revenue growth and gradually improve unit economics, Kling could serve as a catalyst for Kuaishou’s strategic pivot from a 'short-video platform' to an 'AI application platform', potentially triggering a shift in valuation methodology — from pure advertising-driven P/E to a hybrid 'P/E + AI multiple' framework. At the current 11x forward P/E, the stock already prices in considerable pessimism. Downside risks include intensifying competition (especially versus Douyin) and slower-than-expected Kling model iteration; upside catalysts would be stronger-than-expected advertising recovery, accelerated e-commerce GMV growth, and further breakout momentum in the Kling ecosystem.

Risks

• Intensifying competition with Douyin and other new entrants may further constrain advertising market share and monetization efficiency
• Kling AI’s model iteration pace or commercial monetization capability falls short of expectations, failing to deliver anticipated valuation re-rating
• Regulatory policy changes impose stricter requirements on live streaming, content ecosystems, or data compliance, resulting in additional costs

What to watch

• Release cadence and market reception of future Kling AI versions, and whether revenue growth can sustain >2x YoY acceleration
• Whether online marketing revenue stabilizes and rebounds in H2, returning toward near double-digit growth
• Gross margin trajectory: whether AI compute investment achieves scale efficiencies, and whether the share of low-margin businesses stabilizes
• Balance between e-commerce GMV growth and monetization rate: when the impact of KOL support programs on commission rates subsides