Kuaishou Earnings: Fair Value Up 3% as Profitability Beats; E-Commerce and Advertising Still Strong
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.