Company Reports

We expect Kuaishou Technology to expand its daily active users to 400 million by the end of 2024 and its user growth to be the main barometer of success in the near- to medium term. There is a possibility for users to increase beyond this in the long term, but we do not expect the number to be as high as larger China social media platforms such as WeChat or Douyin, since Kuaishou appeals to and targets mostly rural users in lower-tier cities. Users will dictate advertising revenue growth—which will be the long-term direct revenue driver, and should be at a faster pace than China’s forecast gross domestic product growth of 4%-6% in the near term as we expect digital advertising in China to grow more than 8% per year to 2026.

We raised our fair value estimate for Kuaishou to HKD 77 per share from HKD 75 after the company reported better-than-expected profitability in the first quarter of 2024 and reiterated strong guidance for its advertising and e-commerce businesses for second quarter 2024. Kuaishou reported first-quarter revenue of CNY 29.4 billion, 2% above our forecast, but the operating margin reached a record high of 11.7%, improving from negative 3.4% a year ago. This was due to greater e-commerce scale, and the recovery and growth of external and internal ads, respectively. Our slight valuation increase is due to the profitability beat this quarter, as Kuaishou’s guidance was largely unchanged for the rest of 2024. E-commerce gross merchandise volume increased 28% year on year, but its revenue increased by about 50% due to a 40-basis-point year-on-year uptick in monetization rate to about 1.4%. Advertising revenue momentum continued by increasing 27% year on year, and we expect it to increase over 20% year on year for the remainder of 2024. However, livestream revenue declined by 8% year on year. Still, we believe that the potential scale of e-commerce and advertising growth should more than offset weakness in the long term. We continue to view Kuaishou positively and recommend investing in the stock, given our favorable long-term outlook.

We expect Kuaishou Technology to expand its daily active users to 400 million by the end of 2024 and its user growth to be the main barometer of success in the near- to medium term. There is a possibility for users to increase beyond this in the long term, but we do not expect the number to be as high as larger China social media platforms such as WeChat or Douyin, since Kuaishou appeals to and targets mostly rural users in lower-tier cities. Users will dictate advertising revenue growth—which will be the long-term direct revenue driver, and should be at a faster pace than China’s forecast gross domestic product growth of 4%-6% in the near term as we expect digital advertising in China to grow more than 8% per year to 2026.

We expect Kuaishou Technology to expand its daily active users to 400 million by the end of 2024 and its user growth to be the main barometer of success in the near- to medium term. There is a possibility for users to increase beyond this in the long term, but we do not expect the number to be as high as larger China social media platforms such as WeChat or Douyin, since Kuaishou appeals to and targets mostly rural users in lower-tier cities. Users will dictate advertising revenue growth—which will be the long-term direct revenue driver, and should be at a faster pace than China’s forecast gross domestic product growth of 4%-6% in the near term as we expect digital advertising in China to grow more than 8% per year to 2026.

We expect Kuaishou Technology to expand its daily active users to 400 million by the end of 2024 and its user growth to be the main barometer of success in the near- to medium term. There is a possibility for users to increase beyond this in the long term, but we do not expect the number to be as high as larger China social media platforms such as WeChat or Douyin, since Kuaishou appeals to and targets mostly rural users in lower-tier cities. Users will dictate advertising revenue growth—which will be the long-term direct revenue driver, and should be at a faster pace than China’s forecast gross domestic product growth of 4%-6% in the near term as we expect digital advertising in China to grow more than 8% per year to 2026.

We raise our fair value estimate for Kuaishou to HKD 75 per share from HKD 70 after the company provided strong guidance for 2024 and fourth-quarter 2023 revenue of CNY 32.6 billion—an increase of 15% year on year, which was in line with our forecast. Kuaishou guided 2024 revenue to grow 14%, which was slightly higher than our forecast of 12%, driven by year-on-year revenue increases of over 20% in advertising and 30% in e-commerce. This highlights the continued momentum for both businesses, which remain the main long-term growth drivers for Kuaishou. While there is a slight deceleration for e-commerce—which was expected, given robust growth in the last two to three years—we are encouraged that advertising shows fewer signs of slowing down as it maintains approximately the same growth rate as last year. Advertising would be driven by strength in internal ads, or ads that lead to other pages on the platform—which is important, as it keeps the user within the Kuaishou ecosystem. External ads, which lead the user to third-party pages, would also see demand recovery. E-commerce revenue would be driven by a 25% year-on-year increase in gross merchandise volume, or GMV, rather than an increase in commission, which is positive, given that low monetization remains a lever that Kuaishou can use to further catalyze growth. E-commerce is driven by content-based commerce and highlights the consumer shift from traditional e-commerce. We expect the trend to continue and for Kuaishou to outpace peers in both revenue and GMV growth.

We maintain our fair value estimate of HKD 70 for Kuaishou after the company reported third-quarter revenue of CNY 27.9 billion, reflecting a 21% increase year on year that was 1% better than consensus. Revenue growth this quarter was driven by strength in advertising revenue, which increased 27% year on year, and continued momentum in livestreaming e-commerce, which saw a 30% year-on-year increase in gross merchandise volume, or GMV. Combined with lowered sales and marketing expenses, operating margins expanded by 1,000 basis points year on year and 160 points sequentially to 5.9%. This was encouraging, after heavy losses in 2022, and should remain at a mid-single-digit level in the fourth quarter. Kuaishou guided to a 15% year-on-year revenue increase for the fourth quarter, driven by 20% and 40% year-on-year revenue growth for its online marketing and livestreaming e-commerce businesses, respectively. While Kuaishou did not provide visibility into 2024, we believe that revenue should continue to see robust growth, given its encouraging fourth-quarter guidance. Our outlook remains positive for Kuaishou as it still has growth catalysts, including increasing its comparatively low e-commerce monetization and further penetration into low-tier cities.

Kuaishou hosted its analyst day on Sept. 21 and provided some insight into its future strategy and how it plans to increase its monetization. We maintain our fair value estimate of HKD 70 as the company did not provide any new information on its guidance but was confident that it can reach 400 million daily active users in 2024 as previously mentioned. The key takeaways are that it plans to: increase ad monetization by increasing ad load; integrate artificial intelligence into its platform; create better content; and develop a local services business that will compete with Meituan and Alibaba.

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.

We are initiating on Kuaishou Technology with a fair value estimate of HKD 70, which represents 25% upside as of the June 6 close. We expect advertising and e-commerce revenue to drive the bulk of the upside and Kuaishou has multiple levers that it can pull to try to achieve greater revenue and valuation, including increasing its ad load, raising its monetization rate, and the amount of e-commerce on its platform. The platform had 374 million daily users as of first-quarter 2023 and we expect it to plateau at around 400 million users by 2024. However, despite a lower ceiling in expected users, we believe these catalysts have attractive trajectories as they are still emerging and comparatively low compared with other social media peers. Although the stock has run up 8% since its better-than-expected first-quarter 2023 results on May 22, we believe there is still room for further upside and recommend accumulating a position if the stock pulls back.

We expect Kuaishou Technology to expand its daily active users to 400 million by the end of 2024 and its user growth to be the main barometer of success in the near- to medium term. There is a possibility for users to increase beyond this in the long term, but we do not expect the number to be as high as larger China social media platforms such as WeChat or Douyin, since Kuaishou appeals to and targets mostly rural users in lower-tier cities. Users will dictate advertising revenue growth—which will be the long-term direct revenue driver, and should be at a faster pace than China’s forecast gross domestic product growth of 4%-6% in the near term as we expect digital advertising in China to grow more than 8% per year to 2026.