Kuaishou's core community remains resilient, and Kling offers AI upside, but e-commerce pressure keeps the overall view Neutral

Overview

The report summarizes Kuaishou's Investor Day and annual content creator conference held in Wuhan on August 29, 2026. Goldman Sachs believes Kuaishou's short-video community remains resilient and Kling offers long-term AI monetization optionality, but maintains a Neutral rating due to near-term pressure on the e-commerce business and uncertainty regarding the pace of AI investment and monetization.

Core views

Regarding the core platform, management continues to believe short video is the strongest content category and is continuing to gain user time from other content categories. Kuaishou believes its “laotie” community culture is deeply rooted and provides a differentiated foundation for its commercial ecosystem. The next stage is not simply about pursuing more usage time, but about strengthening connections among users, content, and products around approximately two hours of average daily user time to improve monetization efficiency across advertising, e-commerce, and live streaming. The report also emphasizes that AI-generated content cannot yet replace human creators. Management stated that users currently still prefer authentic, human-created content, while market feedback on AI-generated content has been mixed. The interaction, community warmth, and authenticity provided by human creators are difficult for AI to replicate. Kuaishou therefore positions AI more as a complement to the content ecosystem and an efficiency tool rather than as a near-term wholesale replacement for the existing creator system. E-commerce is the business line warranting the greatest near-term caution. The consumption environment is weak, consumers are more cautious, and merchants simultaneously face stricter tax compliance requirements, resulting in materially higher operating and compliance costs; consequently, the second half of 2026 may be even more challenging. Management is still unable to determine when the growth trend will bottom and only hopes to see preliminary recovery signals in 2027. The platform will focus on supporting small and medium-sized merchants and unbranded brands. Approximately 70% of active merchants are mid-tier, lower-tier, and long-tail merchants, forming the platform's core merchant base. The spending strategy will also shift from broad-based subsidies toward more precise user tagging, targeted subsidies, and scenario-based promotion, with returns on merchant marketing spending, consumer incentives, and promotional expenses measured item by item. Kling is the most important strategic upside opportunity identified in the report. Future product upgrades will address the practical pain points of professional creators, focusing on improving visual quality and aesthetics, camera movement and control, physical-world reasoning and simulation capabilities, and model generalization. Management believes generation quality and controllability are more important than merely extending video duration. Advertiser adoption remains at an early stage, indicating further room for penetration. Approximately 70% of Kling's business currently comes from overseas markets. Opportunities in China include AI-native short-form dramas and animated series, while overseas opportunities include advertising production and may extend to high-end films and Hollywood-style productions. The financing and computing-capacity model is key to the changing capex path. Management expects Kling to complete independent financing within the next one to two months. Following the financing, Kling may fund more of its computing requirements through its own operating expenses, primarily by leasing computing capacity rather than relying on Kuaishou Group to continue making substantial capital investments in high-end AI infrastructure. If this more asset-light leasing model is implemented successfully, the report believes the group's future AI capex requirements and free cash flow pressure could both decline. Meanwhile, Kling is expected to remain consolidated within Kuaishou Group, with non-compete arrangements between the parties in video-generation-related fields. Kuaishou may also continue investing in other AI products and categories, allowing the group to retain upside exposure to Kling's monetization while reducing capex intensity. Kling also has business synergies with the main platform. Management believes Kling can help merchants create content and improve advertising and e-commerce conversion. More broadly, AI represents both a standalone business opportunity and an enablement tool for Kuaishou's core ecosystem. Potential applications include reducing content production costs, improving recommendation and distribution efficiency, enhancing live-streaming monetization through demand for AI virtual gifts and tipping, and using large-model paradigms such as “One Rack” to improve user time and monetization efficiency in the main app. In terms of capital allocation, Kuaishou has ample cash resources and plans to continue investing in AI, but will place greater emphasis on return discipline for subsidies, merchant incentives, infrastructure investment, and free cash flow. The gaming business follows the same conditional investment approach: gaming content is already an important component of the platform's content ecosystem, and management will continue monitoring user metrics and investment returns for the newly launched Lord of Mysteries. Resources may be increased only if trends remain positive. Long-term plans include expanding game live streaming, esports, and the related content ecosystem. Goldman Sachs forecasts Kuaishou's revenue to change from RMB142,776.0 million in 2025 to RMB138,297.8 million in 2026, RMB140,659.2 million in 2027, and RMB147,982.4 million in 2028. EBITDA for the same periods is forecast at RMB30,472.0 million, RMB20,003.4 million, RMB23,028.6 million, and RMB26,352.2 million, respectively, while EPS is forecast at RMB4.69, RMB2.05, RMB2.47, and RMB2.96, respectively, indicating pressure in 2026 followed by a gradual recovery. Goldman Sachs assigns a Neutral rating and derives a 12-month target price of HK$38 using expected 2027 EPS and a target P/E multiple of 13x. Relative to the August 28, 2026 closing price of HK$33.46, this implies 13.6% upside. The target price history shows that the target was reduced from HK$68 on June 29, 2026 to HK$38 on August 20. This report continues to use HK$38 but does not explicitly announce a new rating action. Key uncertainties include the recovery in advertising budgets, the pace of Kling monetization, profitability, and AI capex and investment.

Analysis framework

Starting with management updates from the Investor Day and content creator conference, the report sequentially assesses the core community, e-commerce, Kling's products and monetization, financing and computing-capacity model, AI ecosystem synergies, and gaming investment. It then combines company data, Goldman Sachs research forecasts, and FactSet data to form financial and valuation conclusions. Assessments of spending and new businesses emphasize investment returns on an item-by-item basis, ultimately deriving the target price from expected 2027 EPS and a target P/E multiple.

Methodology notes

• Event-driven Strategies and Behavioral FinanceEvent-driven analysis

  Analysis of Investor Day and content creator conference takeaways

  The report uses business trends, strategic priorities, and timelines disclosed by management at specific corporate events to assess recent developments and potential impacts across each business.

• Corporate Fundamentals and Financial Frameworks

  Item-by-item return on investment assessment

  Using the ability of spending to generate measurable returns as its central theme, the report analyzes user subsidies, merchant incentives, promotions, infrastructure, and gaming resource allocation, emphasizing a shift from broad-based investment toward precise, trackable spending.

• Valuation methodsPE/PEG valuation

  Target P/E valuation based on expected 2027 EPS

  Goldman Sachs applies a target P/E multiple of 13x to its expected 2027 EPS to derive Kuaishou's 12-month target price of HK$38.

Asset mapping & comparison

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

• Kuaishou Technology (01024.HK)

  The report's primary research subject; the core platform, e-commerce, live streaming, and gaming form the existing ecosystem, while the consolidated Kling business provides AI monetization exposure. The financing and leased computing-capacity path could reduce the group's capex intensity.

  Strengths

  A differentiated “laotie” community culture, approximately two hours of average daily user time, a merchant base centered on mid-tier, lower-tier, and long-tail merchants, ample cash resources, and Kling's early positioning and technological competitiveness in AI video generation.

  Weaknesses

  E-commerce has yet to show signs of recovery, and weak consumption and rising merchant compliance costs may make the second half of 2026 more challenging; user feedback on AI-generated content also remains mixed.

  Comparison

  Management believes short video continues to gain user time from other content categories. Kling's advantage stems from an early and differentiated strategic judgment, but the report provides no quantitative comparison with specific peers.

  Risks

  A slower-than-expected recovery in advertising budgets, Kling monetization deviating from expectations, profitability deviating from expectations, and uncertainty surrounding AI capex and investment.

Key data

• Average daily user timeApproximately 2 hoursThe core platform's priority is to increase the commercial value of existing user time.
• Share of active mid-tier, lower-tier, and long-tail merchantsApproximately 70%This group forms the core merchant base of Kuaishou's e-commerce business.
• E-commerce recovery observation period2027Management cannot determine when growth will bottom and only hopes to see preliminary recovery signals by then.
• Share of Kling's overseas businessApproximately 70%Kling serves both Chinese and overseas markets, with its current business primarily overseas.
• Expected timing of Kling financingWithin the next 1 to 2 monthsFollowing the financing, Kling may increasingly fund its own operating expenses and lease computing capacity.
• 12-month target priceHK$38Based on a target 2027 P/E multiple of 13x.
• Current priceHK$33.46As of the August 28, 2026 close.
• Upside to target price13.6%Calculated from the target price and current price stated in the report.
• Revenue forecast2025/2026E/2027E/2028E: RMB142,776.0/138,297.8/140,659.2/147,982.4 millionGoldman Sachs research forecasts.
• EBITDA forecast2025/2026E/2027E/2028E: RMB30,472.0/20,003.4/23,028.6/26,352.2 millionGoldman Sachs research forecasts.
• EPS forecast2025/2026E/2027E/2028E: RMB4.69/2.05/2.47/2.96The target price uses expected 2027 EPS.
• Recent target price historyJune 29, 2026: HK$68; August 20, 2026: HK$38; this report: HK$38The closing prices on the two preceding dates were HK$41.00 and HK$33.64, respectively; this report does not explicitly state a new rating action.

Impact & implications

The report believes the resilience of the core community and existing user time provide a foundation for Kuaishou to continue improving monetization efficiency, while Kling offers both standalone monetization and main-platform synergy opportunities. If independent financing and computing-capacity leasing proceed as planned, the group could reduce future AI capex intensity and ease free cash flow pressure while retaining consolidated upside exposure to Kling. However, near-term e-commerce weakness, rising merchant costs, and uncertainty over returns on AI investment constrain the overall directional view.

Risks

• A slower-than-expected recovery in advertising budgets could weigh on monetization performance.
• Kling monetization proceeding faster or slower than expected could cause results to deviate from the base-case assessment.
• Actual profitability above or below expectations could affect valuation.
• The scale or pace of AI capex and investment could deviate from expectations.

What to watch

• Monitor whether Kuaishou's e-commerce business shows preliminary recovery signals in 2027.
• Track whether Kling completes independent financing within the next one to two months and how the computing-capacity leasing model is implemented.
• Watch Kling's advertiser adoption rate, domestic and overseas monetization progress, and upgrades to product quality and controllability.
• Assess Kling's actual contribution to merchant content production, advertising efficiency, and e-commerce conversion.
• Track user metrics and investment returns for Lord of Mysteries to determine whether Kuaishou will increase gaming resources.
• Monitor changes among AI investment, group capex intensity, and free cash flow.