Kuaishou: Initiating with HKD 70 Fair Value; Multiple Levers Available for Modest Upside

We are initiating on Kuaishou Technology 01024 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 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.

For example, Kuaishou’s ad load is only at high single digits compared with social media peers such as Instagram at 20%-25% and Bilibili at 10%-15%. This implies that Kuaishou has the potential to double advertising revenue if it raised the amount of advertising on its platform to Bilibili’s levels. However, we believe that there is still room for user growth and Kuaishou is likely waiting for further saturation until raising its ad load, which is a strategy other social media peers have used.

We also expect that its livestreaming e-commerce business will provide another major revenue stream by 2025 and has two major catalysts. The company guided that gross merchandise value is likely to double by 2025; it reached CNY 900 billion in 2022. In addition, Kuaishou’s monetization rate is 1.3% as of first-quarter 2023 compared with Taobao Live and JD livestreaming, with take rates for the latter two in high single digits. We believe this implies a high upside where Kuaishou can easily generate revenue growth from multiple ends.