With an ARR of $500 million, has the real test for KeLing just begun?

On May 27, 2026, Kuaishou released its financial report for the first quarter of 2026 (Q1). The report shows that Kuaishou's Q1 revenue reached 33.7 billion yuan, a year-on-year increase of 3.4%. The adjusted net profit was 3.4 billion yuan, a year-on-year decline of 26.1%. Looking at the breakdown of revenue, the revenue from online marketing services was 19.6 billion yuan, a year-on-year increase of 9.3%; the live streaming revenue was 8.5 billion yuan, a year-on-year decline of 13.5%; and the revenue from other services (e-commerce, AI) was 5.6 billion yuan, a year-on-year increase of 15.9%.

Overall, Kuaishou's revenue growth rate has declined. Affected by the overall focus on AI, both gross profit and net profit have decreased.

In terms of stock price, as of the close on May 27, Kuaishou's stock price closed at HK$45.28, with a market value of HK$197.9 billion.

The highlight of this quarter is still "Keling AI". However, when looking at a broader scope, it can be found that the AI video segment is also facing great competitive pressure. (Note: To distinguish between domestic and overseas product versions, "Kling AI" will be used when discussing overseas App and Web products, and "Keling AI" consistent with the financial report will be used when discussing domestic products, models, teams, and businesses.)

According to the financial report, the revenue of "Keling AI" in Q1 reached 650 million yuan. The annualized revenue run rate (ARR) in March 2026 had reached US$500 million. The well - known investment bank J.P. Morgan also admitted that its previous forecast of the annual revenue of US$450 million might be too conservative.

In terms of revenue structure, in Q1, "Keling AI" showed signs of starting to gain momentum on the C - end, and this trend continued in Q2. The launch of the Motion Control function in Q1 led to the popularity of "Baby Dance" and "Pet Dance". In Q2, due to the popularity of "Korean Baseball Fan Cam", the daily global revenue on the mobile - only end reached a maximum of US$220,000 (third - party data, for reference only).

Daily revenue changes of "Kling AI" (iOS - only) | Data source: AppMagic

However, on the other hand, with the successive launches of Seedance 2.0 and Happyhorse, the advantage of Keling's model capabilities has gradually been eroded. The revenue from Pro user subscriptions and API services may face pressure in the future.

Fierce competition in the B - to - B market, and efforts in the C - to - C market

"Keling AI", which has been focusing on model development and has been lukewarm on the C - end, seems to have suddenly become more innovative this year.

In January 2026, "Kling AI" launched the Motion Control function. Users can generate smooth dynamic videos by uploading static pictures and drawing trajectory lines. Due to the significant improvement in quality, stable output, and lower operation threshold, content such as "Kitten Dance" and "Baby Dance" has attracted public participation and become popular on social media.

In that month, the revenue of the "Kling AI" App increased from US$1.2 million to US$2.5 million (data from AppMagic). However, during the same period, shell products such as AI Video and Pose AI achieved a more than five - fold month - on - month revenue growth, far exceeding that of "Kling AI", the "initiator of the technology". If the revenue from API calls is not counted, "Kling AI" has done all the hard work for others.

However, in May, "Kling AI" responded much more quickly and did not miss the opportunity to monetize the new hot topic.

A video posted by Korean blogger Kangmin Lee on X, which seems to be the starting point of this trend | Image source: X

On May 2, a Korean blogger posted a video of "Korean Baseball Fan Cam" made with AI on X, which received more than 15 million views. Subsequently, people around the world followed suit. On May 11, "Kling AI" launched the Stadium Broadcast Challenge on social media and quickly launched template - based gameplay in the App. Later, it also launched various similar templates for NBA, F1, football, tennis and other sports events, with a faster follow - up speed than other products, which also translated into user growth and real revenue.

On May 14, "Kling AI" topped the overall charts of the App Store in 42 countries, covering markets in Europe, Latin America, Southeast Asia, the Middle East, etc. It also entered the top 10 of the overall chart on the US iOS end.

Landing page of "Kling AI"

In line with the hot - topic operation, the banner on the home page of "Kling AI" is promoting the "Stadium Screen Live - broadcast Challenge" and various related gameplay, and the "AI Gameplay" section is also placed below the image/video generation entrance on the home page.

The ability to sense social media trends and quickly implement template - based gameplay has become the biggest highlight of "Keling AI" recently. While maintaining growth in the B - end and Pro user segments, it has opened up new revenue channels. However, on the other hand, as the C - end business is in the spotlight, the revenue from Pro user subscriptions and API calls, which have always supported the ARR, although growing rapidly with the overall AI video market, is still facing the pressure of the eroded advantage of model capabilities and urgently needs to find new growth points.

Artificial Analysis Text - to - video (top) and Image - to - video (bottom) rankings | Image source: Artificial Analysis

We have observed many times that "Keling AI" can maintain its leading position in the video generation track because of "strong and continuously strong". However, in the recent AI video rankings of Artificial Analysis, this advantage is difficult to maintain. The Keling AI series of models can only rank 4th in text - to - video and has even dropped out of the top 5 in image - to - video.

The author tested Kling 3.0 and Seedance 2.0 with the same prompt. Although both have bugs and are not perfect, in terms of the effect, Seedance's presentation of facial expressions, door - opening actions, liquid colors, and the position of wind chimes is better than that of Kling 3.0.

According to Similarweb, the traffic to the overseas website of "Kling AI" in April was 10.68 million, a significant decline compared to 14.76 million in March. During the same period, the traffic to the overseas version of Dreamina, Dreamina, increased from 12.09 million to 12.89 million, surpassing "Kling AI". The attractiveness of "Keling AI" to professional users is also declining.

The advantage of model capabilities is no longer there

Can spin - off solve the problem of business pressure?

The iteration of AI video large models is actually a war of attrition in terms of computing power and talent.

In terms of computing power, according to Bloomberg, ByteDance is internally discussing an extremely aggressive capital expenditure plan. This year, it will increase its investment in AI infrastructure to a maximum of US$70 billion (more than 500 billion yuan). If conditions permit, the budget target for next year may even reach US$100 billion. In contrast, Kuaishou's total capital expenditure (computing power and infrastructure) in 2026 is only expected to be 26 billion yuan, a significant gap compared to ByteDance.

In terms of talent, Zhang Di, the former vice - president of Kuaishou and the technical leader of "Keling AI", left Kuaishou in August 2025 and joined Alibaba in November of the same year. HappyHorse, which topped the list of Artificial Analysis, was developed by him.

Therefore, Kuaishou's solution is "spin - off and listing". On May 12, media reported that Kuaishou plans to spin off "Keling AI" independently and promote its IPO on the Hong Kong Stock Exchange in 2027. It is currently in contact with investors in the pre - IPO round at a valuation of about US$20 billion. A few hours later, Kuaishou announced that the rumor was true, but no agreement had been signed yet.

Image source: Kuaishou IR

In this financial report, Kuaishou's performance is under obvious pressure, which may be the reason for releasing the spin - off news at this time.

The financial report shows that Kuaishou's Q1 revenue was 33.7 billion yuan, a year - on - year increase of 3.4%, the lowest growth rate since Q1 2023. The gross profit was 17.2 billion yuan, a slight year - on - year decline. However, with the increase in costs such as R & D, administration, marketing, and taxes, the adjusted net profit decreased by 26.1% year - on - year.

That is to say, Kuaishou's revenue cannot grow rapidly now. At the same time, due to the significant increase in AI - related costs, its self - financing ability is insufficient, and it may even drag down the investment in Keling AI.

Looking at different business lines, due to the growth of content consumption such as AI comic dramas, the growth rate of advertising revenue in Q1 is still good, with a year - on - year increase of 9.3%. The peak daily marketing consumption of comic dramas on the Kuaishou platform exceeded 20 million yuan. Although the revenue growth rate is not as high as in previous quarters, the first quarter is a relatively off - season, and both MAU and DAU of Kuaishou reached new highs this quarter, so there is no need to worry about advertising revenue in the short term. The situation of live - streaming is not so optimistic. Kuaishou's live - streaming revenue decreased by 13.5% year - on - year to 8.5 billion yuan.

Kuaishou's other businesses include e - commerce and AI, with a revenue of 5.6 billion yuan, a year - on - year increase of 15.9%. Since this financial report, Kuaishou no longer publishes e - commerce GMV data, so we don't know the specific revenue distribution. However, the statements in the financial report show that this growth is mainly driven by "Keling AI", and the growth of the e - commerce business may not be very obvious.

The overseas market turned from a short - term profit to a loss. Kuaishou's overseas revenue was 1.162 billion yuan, a year - on - year decline of 11.6%, and the loss was 31 million yuan, with the decline continuing to narrow quarter - on - quarter.

Due to the pressure on e - commerce and live - streaming, although the revenue of Keling AI is growing, its proportion is limited (less than 2%). With only the advertising business growing rapidly, Kuaishou's overall revenue only increased by 3.4%. On the cost side, Kuaishou's sales cost in this quarter was 16.467 billion yuan, a year - on - year increase of 11.1%, resulting in a slight 3.1% decline in gross profit.

More notably, the fastest - growing costs in the main business are "bandwidth and server hosting costs" and "depreciation of property and equipment, amortization of intangible assets", with year - on - year increases of 18.4% and 43.7% respectively. This is closely related to the computing power costs brought by the full penetration of AI into various business lines and the investment in the AI video business. At the same time, R & D expenses increased by 9.8% year - on - year, and the financial report clearly attributes this to "increased investment in AI". Fortunately, Kuaishou still has sufficient cash flow.

Investing in AI is good, but it is also very expensive. Given the