Kuaishou (Minutes): Impact of Competition? Kuaishou's short-term growth may slow down more than expected.
The following is the summary of the 3Q25 earnings call minutes for $KUAISHOU-W(01024.HK) organized by Dolphin Research. For financial report interpretation, please refer to "Kuaishou: Saying Goodbye to 'Rustic' Valuation, Still Relying on Keling"
I. Review of Core Financial Information
1. Total revenue for the third quarter increased by 14.2% year-on-year to RMB 35.6 billion, with core business revenue (online marketing services and other services, mainly e-commerce) growing by 19.2% year-on-year. Driven by stable revenue performance, operating profit increased by 69.9% year-on-year to RMB 5.3 billion, adjusted net profit increased by 26.3% year-on-year to RMB 5 billion, and adjusted net profit margin remained at 14%.
2. Online marketing services revenue reached RMB 20.1 billion, up 14% year-on-year; other services revenue (including e-commerce and Kling AI) reached RMB 5.9 billion, up 41.3% year-on-year, mainly driven by e-commerce GMV growth and Kling AI commercialization expansion.
3. Third-quarter live streaming revenue increased by 2.5% year-on-year to RMB 9.6 billion. Growth was mainly due to high-quality content, expansion of live streaming scenarios, and AI-driven product innovation.
4. Operating costs increased by 13.4% year-on-year to RMB 16.1 billion, accounting for 45.3% of total revenue; gross profit increased by 14.9% year-on-year to RMB 19.4 billion, with gross margin rising to 54.7%, up 0.4 percentage points from the same period last year.
5. Sales and marketing expenses were RMB 10.4 billion, basically flat compared to the same period last year, with the proportion of revenue falling to 29.3%; R&D expenses were RMB 3.7 billion, up 17.7% year-on-year, and administrative expenses fell by 13.6% year-on-year to RMB 688 million, reflecting improved overall operational efficiency.
6. As of September 30, 2025, the company's cash and cash equivalents, restricted cash, and financial products totaled RMB 106.6 billion, with net cash flow from operating activities for the quarter at RMB 7.7 billion, indicating a strong balance sheet.
7. The company continues to reward shareholders, with cumulative repurchases of approximately HKD 2.17 billion shares this year and the announcement of a HKD 2 billion special dividend, reflecting confidence in Kuaishou's long-term growth and financial stability.
II. Detailed Content of the Earnings Call
2.1 Executive Statements of Core Information
1) The company continued to advance its AI strategy in the third quarter, with significant iterations in the Kling AI model, achieving breakthroughs in video generation quality, cost efficiency, and commercialization progress, with quarterly revenue exceeding RMB 300 million, while initiating the construction of a global creator ecosystem.
2) Kuaishou deeply integrates large AI models into recommendation, delivery, bidding, e-commerce search, and content generation scenarios; OneRec and generative reinforcement learning models significantly enhance marketing effectiveness and e-commerce matching efficiency, bringing substantial incremental benefits to various businesses.
3) Third-quarter DAU reached 416 million, setting a new high for three consecutive quarters. The company continues to strengthen Kuaishou's positioning as a warm, diverse, information-rich, and interactive online community by optimizing user growth strategies—providing unique and diverse content, optimizing traffic distribution mechanisms, and enhancing community interaction.
4) In the third quarter, the company iteratively upgraded online marketing delivery and product systems, relying on bidding models based on generative and reinforcement learning, generative recommendation large models, and Kling AI's capabilities in marketing material generation, significantly improving delivery efficiency, driving strong year-on-year growth in external marketing services and closed-loop e-commerce marketing services; AIGC short videos, digital humans, and digital employees form an end-to-end AI solution covering the entire process of marketing material creation, live streaming operation, and user interaction, with marketing service expenditures related to AIGC marketing materials exceeding RMB 3 billion in the third quarter.
5) Third-quarter e-commerce GMV grew by 15.2% year-on-year, with the platform continuously promoting natural growth of merchants, improving repurchase rates, and enhancing traffic and sales conversion through intelligent tools, AIGC material generation capabilities, KOL empowerment, and diverse scenario operations.
6) Third-quarter live streaming revenue increased by 2.5% year-on-year to RMB 9.6 billion, supported by the growth of cooperative brokerage firms and signed broadcasters on the supply side of live streaming content, with the number of cooperative brokerage firms increasing by over 17% year-on-year and the number of signed broadcasters increasing by over 20% year-on-year. The company launched the AI Universe Gift Customization feature, with over 100,000 user-paid creations and sends on the first day, and enhanced live streaming viewership through offline events such as "Super Stage 2.0" and "Summer Game Music Festival," with the latter's live streaming viewership reaching 672 million times, continuously enhancing user engagement and commercialization performance.
7) In the third quarter, the company continued to consolidate its overseas market layout, focusing on high-quality growth. On the traffic side, it optimized customer acquisition efficiency to precisely reach high-value groups, with Brazil, the core international market, maintaining stable daily activity and achieving year-on-year growth in average daily user time. In terms of online marketing services, overall marketing funnel conversion efficiency improved, releasing the monetization potential of diverse user groups; Brazil's e-commerce business simultaneously improved subsidy efficiency and operational efficiency, with GMV transaction scale and order volume achieving healthy year-on-year growth.
2.2 Q&A Session
Q: What is Kling AI's competitive strategy? How will the video generative AI industry develop in the future? How does the company plan to promote Kling's subsequent evolution? Are there more opportunities for video generative AI on the 2C side?
A: The video generation market attracts many tech giants and startups, proving its huge potential, but current products and technologies are still immature, with industry innovation expected to accelerate, penetrate more scenarios, and drive continuous market expansion. Kling AI's core goal is to enable everyone to create stories with AI, with the current strategic focus on AI-driven film production. The company will continue to invest in model and product capability building, as video models are more complex and open than language models, thus offering broad space for technological innovation.
In product advancement, the company continuously upgrades foundational models and product capabilities while launching operational initiatives such as the "Future Partner Program," connecting creators and brands (such as NBA, Mixue Ice Cream) with commercialization opportunities; and through creative competitions, assisting creators in appearing at international film festivals, strengthening Kling's global influence. The recent explosive growth of products validates the potential of deep integration between video generation and social interaction. Currently, the focus remains on professional creators, enhancing their user experience and willingness to pay, while actively exploring consumer-side application scenarios. When the time is right, Kling AI's commercialization and socialization will be promoted.
Q: Besides Kling AI and OneRec, how does Kuaishou utilize AI to empower the content ecosystem and improve operational efficiency?
A: 2025 is the year of deep AI application, with the company building an AI application system centered on user needs around real business scenarios. In the content ecosystem, self-developed multimodal large models significantly enhance video understanding capabilities, driving upgrades to short video and live streaming content understanding systems, and launching a new generation of tagging systems for more precise content recognition and interest discovery, thereby increasing user usage time. Kling AI continues to empower mass creators on the content generation side, with a significant increase in bidding views of platform AIGC content;
Meanwhile, the new generation OneRec·Think integrates large model inference, personalized recommendation, and real-time feedback, further improving recommendation accuracy and user trust. In terms of organizational efficiency, the AI tool CodeFlicker has become a core tool for development, generating about 30% of new code; content review fully introduces large models, covering user profiling, content recognition, and comment analysis, with over 99% of content reviewed by AI; in the customer service system, over 70% of user inquiries are directly handled by AI, significantly improving service efficiency. Management believes that AI is forming a self-reinforcing cycle of "technological breakthrough—business application—commercialization," continuously enhancing the company's resilience and bringing new growth momentum.
Q: This quarter's online marketing revenue growth accelerated. Can management explain the reasons for growth from the perspectives of traffic, industry trends, and product services?
A: The acceleration in online marketing revenue growth in the third quarter mainly came from three aspects:
On the traffic side, the increase in overall traffic and native marketing content drove display volume, with generative reinforcement learning, bidding systems, and end-to-end recommendation models improving matching efficiency, boosting CPM.
On the industry side, life services and content consumption performed prominently: life service customers improved conversion rates with support from private message products, cross-industry conversion paths, and AI tools (AI customer service, UAX, AIGC materials); in content consumption, comic-style short dramas exploded, with Kling AI participating in upstream production. In the e-commerce closed loop, intelligent bidding agents and generative models strengthened exposure, conversion, and repurchase.
On the product side, UAX upgraded to stable delivery in fixed cycles, accounting for over 70% of external circulation ads in the third quarter; AIGC material tools lead the industry in conversion efficiency, with digital human live streaming and virtual employees enhancing all-day delivery and customer service efficiency. The company will continue to expand industry customers and deepen AI applications.
Q: How did Double Eleven perform recently? What are the core growth drivers and growth potential for e-commerce (especially live e-commerce) in the next 1-2 years?
A: This year's Double Eleven performance met expectations, with categories such as jewelry, tea and wine health, apparel, and fresh produce standing out. The platform invested over RMB 18 billion in traffic incentives and RMB 3 billion in subsidies, significantly enhancing conversion and participation, with the number of merchants breaking the million GMV mark recording double-digit growth; shelf e-commerce drove strong GMV growth through initiatives such as "big brands" and "big subsidies" and search-driven GMV.
In the next 1-2 years, e-commerce growth will mainly come from increasing purchase frequency and raising ARPPU: including strengthening broadcaster private domain operations, enriching categories, lowering shelf purchase thresholds, and precisely reaching high-value users. MPU still has significant growth space but is a long-term goal. Live e-commerce still has strong conversion and structural growth space, with the key being to build a healthy ecosystem, drive repurchase through private domain, and enhance merchant efficiency through public-private domain collaboration, distribution pools, and AI tools; the company will also promote cross-scenario operations to enhance the resilience of the e-commerce system.
Q: Is there new guidance on capital expenditure planning for AI projects (including Kling AI)? Is there any adjustment to the 2025 profit margin outlook? How will AI investment affect profit margins in the next 1-2 years?
A: This quarter, AI deeply integrated into content and commercial ecosystems, significantly improving organizational efficiency. Kling AI's commercialization progress exceeded expectations, with full-year revenue expected to reach USD 140 million, far exceeding the initial target of USD 16 million. Amid the rapid growth in video generation demand, the company is continuously expanding inference computing power and has initiated a training computing power expansion plan to maintain technological leadership. Considering these investments and other AI projects, capital expenditure in 2025 is expected to record mid to high double-digit growth year-on-year.
Additionally, the company is increasing investment in AI talent recruitment and retention, although expenses have risen, they remain within controllable ranges. Management emphasizes that even with increased AI-related investments, there is confidence that the full-year adjusted operating profit margin will continue to achieve year-on-year improvement, reflecting AI's continued release of incremental value for content and commercial ecosystems. In the next 1-2 years, the company will continue to expand its layout around computing power and technological capabilities, with potential returns from the expansion of AI application scenarios gradually being realized. Management is confident in future profitability and looks forward to continued steady improvement in the next two years.
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