Keling becomes Kuaishou’s “new trump card”: Behind over 300% growth, 75% of revenue comes from overseas, ARR expected to reach $1 billion.

Against the backdrop of pressure on Kuaishou’s core business, Koling has far exceeded expectations in performance, supporting the market's imagination for Kuaishou and causing a shift in Wall Street’s valuation logic.

As Wallstreetcn mentioned, on May 27, Kuaishou released its Q1 2026 financial report. Koling AI revenue reached 650 million yuan, a year-on-year increase of over 300%, significantly surpassing the management’s previous guidance of 300 million yuan. As of the end of March, annual recurring revenue (ARR) was nearly 500 million USD.

Management disclosed that 75% of Koling’s revenue comes from overseas markets, and the ratio of API to subscription income among paid forms is 60:40.

According to Zhuifeng Trading Desk, Morgan Stanley has raised its forecast for Koling’s ARR at the end of 2026 from 840 million USD to 1 billion USD.

However, the impressive Koling numbers cannot mask the sluggishness of the core business. Kuaishou’s Q1 total revenue grew only 3.4% year-on-year; livestreaming revenue declined 13% year-on-year; adjusted net profit fell 26% year-on-year.

On one hand is slowing growth and the need for concessions and investment in short video/e-commerce/advertising on the main platform; on the other hand is the rapid revenue expansion and independent financing/divestment imagination space of Koling AI.

This is why broker opinions diverged significantly after the financial report: Optimists are more willing to assign a higher valuation weight to Koling, believing AI video generation is Kuaishou’s most important option at present; Cautious analysts focus more on the declining growth of core business and the pressure on profits and cash flow brought by increased AI investment.

Kuaishou’s stock currently trades at HK$45.5. Morgan Stanley maintains an overweight rating, Citi also maintains a buy rating, J.P. Morgan maintains a neutral rating.

(Kuaishou Hong Kong shares have fallen over 30% since the beginning of the year)

Core business under multi-line pressure and weakening growth momentum

Kuaishou’s Q1 total revenue was 33.716 billion yuan, up 3.4% year-on-year, slightly higher than market expectations. By segment:

Livestreaming revenue: 8.492 billion yuan, down about 13% year-on-year;Online marketing service revenue: 19.643 billion yuan, up about 9% year-on-year;Other service revenue: 5.581 billion yuan, up about 16% year-on-year, with significant contribution from Koling.

On the profit side, non-IFRS net profit was 3.374 billion yuan, down 26% year-on-year, but about 10% higher than market expectations. Adjusted net profit margin was 10%, down about 4 percentage points from the same period last year.

Analysts believe Kuaishou’s main business is clearly facing pressures of slowing growth and declining gross margin. Q1 gross margin was 51.2%, down 3.4 percentage points year-on-year and also significantly declining compared to Q4 last year. This is due to changes in revenue structure as well as increased costs related to AI computing power, bandwidth, and data center depreciation.

In other words, Kuaishou is currently at a typical stage of “high growth in new business, restructuring in old business.” Koling brings new imagination to revenue and valuation, but the main platform still needs subsidies, low commission rates, and merchant support to stabilize the ecosystem, which suppresses short-term profit margins.

Koling is the biggest highlight, turning from a "story" into an "income item"

Koling’s Q1 outperformance comes from both expansion of user scale and increase in average revenue per paying user (ARPPU).

According to Morgan Stanley research, Koling’s development focuses on professional user needs. The latest versions will further strengthen multi-modal input/output, long-context processing, and image quality.

In terms of retention rate, overseas markets perform obviously better than domestic, about 10 percentage points higher.

In terms of income structure, management disclosed that overseas and domestic income ratio is about 75:25, highlighting Koling’s global penetration in the field of professional creativity.

J.P. Morgan research notes Koling AI’s ARR was 300 million USD in January and had risen to 500 million USD by March, with non-linear growth.

Citi’s research also indicates Koling’s revenue growth is driven by strong demand in professional creative scenarios such as advertising, film, and gaming, projecting full-year revenue to exceed 500 million USD.

At the product level, management stated Koling’s video generation accuracy is higher when accepting longer prompts, forming a core differentiation advantage over competitors. Kuaishou also revealed Koling AI was deeply involved in production of a popular Chinese historical drama, as well as virtual scenes and visual effects in some Hollywood TV productions.

Valuation divergence: how much Koling is worth determines how much Kuaishou is worth

Koling’s rapid growth is changing Wall Street’s pricing framework for Kuaishou.

The core of the current market disagreement: should Kuaishou be seen as a low-valued internet platform, or as a company owning AI video generation assets?

Morgan Stanley uses sum-of-the-parts (SOTP) valuation, valuing core business at 8x 2026 projected PE, and Koling at 20x P/ARR with a 30% holding company discount.

Citi gives a more optimistic valuation, valuing the core business at 10x 2027 PE and Koling at 25x 2027 PS.

Citi’s research believes Koling’s upward valuation potential coexists with the pressure in core e-commerce business, and the current valuation level is attractive. Koling’s upcoming version upgrade (likely around June 6, its anniversary), and external financing progress are key catalysts watched by the market.

J.P. Morgan takes a more cautious stance, maintaining a neutral rating.

It points out that under regulatory policy impact on e-commerce, weak consumer sentiment, and sharply increased capital expenditure, Kuaishou’s core business revenue growth excluding Koling is expected to slow from 12% in 2025 to 3% in 2026—2027, with no clear catalyst for rating upgrade.

This divergence is not unusual. For traditional internet business, the market focuses on revenue growth, profit margins, and cash flow; but for AI applications, it often looks at ARR, retention, overseas paying users, model capability, and comparable capital market valuation.

If Koling gets external financing, independent valuation, or a spin-off, Kuaishou’s valuation framework will be reanchored. Morgan Stanley’s research clearly states potential Koling spin-off is a key reason to maintain overweight rating, believing this could unlock significant revaluation space.

Macroeconomic implications of Kuaishou’s financial report: Platform economy enters “growth by efficiency and new technology” era

Kuaishou’s financial report has wider industry reference significance.

Currently, the main theme for domestic internet platforms has shifted from "traffic expansion" to "stock efficiency improvement."

Short video user time remains resilient, but incremental traffic dividends are limited; advertising, e-commerce, and livestreaming are operating in more mature competitive patterns.

For platforms to keep growing, one side relies on algorithms and AI to increase advertising efficiency, and the other uses subsidies and ecosystem building to maintain transaction scale.

At the same time, the consumption environment affects platforms’ monetization pace. Merchants' advertising focuses more on ROI; consumer spending is more rational; platforms need to balance between raising commissions and expanding subsidies.

Put more gently, the current consumer and merchant business environment is still in a recovery process, and the growth elasticity for internet platforms is no longer as abundant as in previous years.

Kuaishou’s difference is that it has indeed developed a new business with income, overseas demand, and potential for capitalisation. Koling enables Kuaishou to no longer be just the “second place in short video” or a “livestream e-commerce platform,” but to start having some characteristics of an AI-native application company.

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