Kuaishou Earnings: Profitability Significantly Improves, but Revenue Slowdown Is Ahead

We maintain our fair value estimate of HKD 70 for Kuaishou after the company reported second-quarter revenue of CNY 27.7 billion, reflecting a 28% increase year on year that was 2% better than consensus. Kuaishou saw mixed results as it achieved profitability for the first time, but we expect revenue to decelerate as user growth appears to be slowing—the platform added only 2 million daily average users, or DAU, this quarter to 376 million. Despite the slowdown in users, advertising revenue increased 30% year on year, driven by overall strength in e-commerce and native ads. Kuaishou indicated that it saw greater demand from advertisers, which led to a 20% increase year on year for average marketing revenue per user. In addition, e-commerce gross merchandise volume, or GMV, grew 39% year on year. The revenue growth, combined with reductions in bandwidth and sales and marketing costs, led to a 500-basis-point gross margin increase and positive operating margins for the first time.