Kuaishou must become an AI company

During the week of May 12th, I wrote an article titled "Kuaishou Spins Off Keling, While Keling Devours Kuaishou".

At that time, the topic under discussion was that Kuaishou planned to spin off Keling and seek financing at a valuation of $20 billion. At the current time, Kuaishou's market value is approximately $30 billion.

The valuation of the subsidiary business is directly approaching two - thirds of that of the parent company, which is quite rare in the history of Chinese Internet spin - offs. However, there was an unresolved question at that time: Will the valuation inversion at the capital market level be transmitted to the real business operations?

On the evening of May 27th, Kuaishou released its Q1 financial report.

The answer is not only yes, but also the transmission speed is faster than everyone expected.

1. Lay Out the Numbers First

In the first quarter, the revenue was 33.7 billion yuan, a slight year - on - year increase of 3.4%. Looking at the overall situation, this is only a barely passing report card for maintaining the status quo.

However, the quality of the income statement has completely changed.

The adjusted net profit dropped to 3.4 billion yuan, a year - on - year plunge of 26.3%; the profit during the period fell to 2.9 billion yuan, directly sliding from the 4 - billion - yuan level of the same period last year. The overall gross profit margin was forcibly pushed down from 54.6% to 51.2%.

The logic of this math problem is very interesting. Although the revenue increased by 1.1 billion yuan, the net profit evaporated by 1.1 billion yuan out of thin air.

The newly - added real money was gobbled up by another huge maw before it could even warm up in the account.

This maw is Keling.

In the first quarter, Keling's single - quarter revenue exceeded 650 million yuan, a year - on - year surge of 300%. Its ARR (Annual Recurring Revenue) increased from $100 million in the same period last year to nearly $500 million in March this year. It quadrupled in just one year.

This forms the most peculiar curve in Kuaishou's financial report. The core profit of the parent company is continuously bleeding, while the revenue curve of the subsidiary business is exploding wildly.

This is by no means a coincidence. They are actually two sides of the same coin.

2. Where Did the 1.15 - Billion - Yuan Gross Profit Go?

The most critical signal in the financial report is actually the gross profit margin.

It dropped by 3.4 percentage points.

3.4 percentage points may not seem like much. But when multiplied by the 33.7 - billion - yuan revenue, it means that approximately 1.15 billion yuan of gross profit has disappeared out of thin air.

Where did this 1.15 billion yuan go?

Kuaishou's explanation in the financial report is straightforward: The increase in sales costs and greater investment in AI.

Compared with the R & D expenses, which increased year - on - year to 3.6 billion yuan and directly cut into the profit, the more hidden bleeding point is actually included in the sales costs. Keling released its 3.0 full - modality large - scale model in February, and its global user scale exceeded 60 million.

What supports this huge scale to run wild overseas are the bottomless server depreciation, inference computing power bills, and model training costs. These hard expenses have directly dragged down the overall gross profit performance.

Indeed, Keling earned 650 million yuan in Q1. But after offsetting the computing power and R & D dividends it consumed, it is still in a delicate state of walking on a tightrope with the parent company's profit. The revenue it generates is still far from covering its comprehensive costs.

This is the most familiar and dangerous stage for AI companies. According to market estimates, OpenAI loses $1.22 for every $1 it earns. Anthropic just got out of this situation some time ago.

Today, Keling is also at this crossroads of fate.

3. Devour Is No Longer a Rhetoric, but a Structure

In my previous article, I used the word "devour", which was more of a rhetorical device at that time.

After the release of the financial report, this word has become a structure.

Breaking down Kuaishou's traditional three - pillar businesses. The live - streaming business dropped by 13.5% year - on - year, shrinking to 8.5 billion yuan in a single quarter. This has been a regular pain for multiple consecutive quarters; the advertising growth rate dropped to 9.3%, completely bidding farewell to the once high - growth myth; e - commerce has long been firmly suppressed by Douyin hanging over its head.

If we only look at the traditional main business, Kuaishou achieved a 10.7% year - on - year increase in core business revenue through online marketing and e - commerce. Its performance is quite hard - working.

However, this restrained growth has no chance to be reflected in the final income statement. As soon as the data enters the financial report, before it can even warm up, it is instantly sucked away by Keling on the other side.

At the end of March this year, when the video large - scale models in Silicon Valley were facing numerous obstacles in commercialization and there was a cooling - off period, Keling almost became the only hardcore player in the global market capable of filling the overseas vacuum.

However, the prerequisite for seizing this historical dividend is to continue to invest money in an even more crazy manner, requiring top - level computing power, more frequent iterations, and more expensive talents.

This is why the spin - off financing plan with a $20 - billion valuation seems so urgent.

The news of the spin - off came out on May 12th, and the financial report hit the bottom on May 27th. Only 15 days passed in between.

This half - month of capital operation is actually the inevitable result of the cold financial causality.

Kuaishou must quickly remove Keling from the parent company's balance sheet and turn it into an isolated entity that is self - supporting and independently financed.

Otherwise, if this profit - eating curve continues to appear in Kuaishou's financial report, it will soon drag the parent company's performance into a situation where it cannot explain itself to the secondary market.

4. But There Is Another Side to This

If we only see the devouring of profit, we may underestimate Kuaishou's strategic ambition.

Because Keling is by no means a subsidiary business that simply consumes cash flow. It is very likely to be Kuaishou's only chance to transform from a traffic distribution platform to a full - network video infrastructure in the second half of the Internet era.

The commercial valuation and imagination space between the two are worlds apart.

Over the past decade or so, the competition logic in the Chinese Internet has never changed: Whoever monopolizes the traffic entrance is the winner.

Under this iron law, Kuaishou can only struggle under the shadow of Douyin, exhausting itself to increase user time, compete for DAU, and compare advertising ROI.

However, there has been a subtle change in the era of AI - generated videos:

For the first time, the industrial production capacity of videos has begun to surpass the traffic distribution capacity.

In the past, the most valuable asset in the short - video industry was traffic; today, the scarcest barrier has become who can mass - produce high - quality content above the passing line with the lowest marginal cost and the highest engineering efficiency.

And this exactly aligns with Kuaishou's DNA.

The market often overlooks a fact. Kuaishou is the platform in China that has the deepest understanding of the industrial production of videos. Its huge ecological foundation is composed of countless live - streamers, MCN agencies, e - commerce influencers, and content studios. These people are on the high - frequency and necessary video material production line every day.

There is originally a very mature full - industry - chain workflow for videos embedded within Kuaishou. The intervention of AI essentially applies a full - automated dimensionality - reduction strike to this workflow.

The fact that Keling was the first to succeed globally is by no means accidental luck, but the fruit of the underlying ecosystem.

5. AI Is a Life - Changing Opportunity for Kuaishou

Among the established giants sitting at the AI table today, they each have different fallback options.

Even if Tencent is a bit slow, WeChat behind it is still an unshakable behemoth. Even though ByteDance's AI expenses are astronomical, Douyin and TikTok are still super cash cows; Alibaba has the support of its e - commerce market and Alibaba Cloud.

But Kuaishou has no fallback.

The ceiling of the short - video platform is already obvious. User time has reached its peak, advertising growth has slowed down, content has become homogenized, and traffic has become more and more expensive. All short - video platforms are desperately looking for a second growth curve. Douyin is doing e - commerce, Xiaohongshu is creating a closed - loop ecosystem, Bilibili is focusing on games, and Video Account is integrating with the WeChat ecosystem.

Kuaishou doesn't have Tencent's ecosystem, ByteDance's globalization, or Alibaba's commercial foundation. The only thing it can rely on is video itself.

Therefore, for Kuaishou, AI has never been just an icing - on - the - cake bonus item, but a life - changing new narrative that is crucial for its survival and must succeed.

This is also why the subtext of the latest financial report is so thought - provoking.

Kuaishou's senior management has begun to deliberately downplay the traditional label of a short - video platform in the earnings call and instead frequently mention AI - generated content, AI intelligent marketing, digital human assets, and productivity tools.

In essence, Kuaishou is undergoing a thrilling identity reshuffle. It no longer wants to be a company that makes money by selling content attention. It wants to become an AI technology company that produces video productivity.

6. What Will Happen Next?

After being spun off, Keling's fate will diverge into two completely different branches.

The first is the ultimate comeback in the Yahoo model.

Keling's ARR continues to double every year at a stubborn growth rate, heading straight towards $1 billion and $2 billion. The independent financing is a great success, and the $20 - billion valuation is fully realized.

By then, whether Kuaishou itself makes money or whether its traffic has reached its peak will no longer matter. The secondary market will only care about how many original shares of Keling Kuaishou holds, just as Yahoo, whose main business has long been forgotten, is still regarded as a guest of honor in the capital market because of its early stake in Alibaba.

The second is hitting an invisible ceiling.

The B - side commercialization path of AI - generated videos may be much narrower than expected. If the ordinary users' willingness to pay quickly drops to zero after the novelty wears off, Keling's survival can only rely on limited commercial scenarios such as advertising, film and television materials, and AI short dramas. Once its ARR starts to decline after crossing the $500 - million mark, it will be difficult to tell the capital story of the independent spin - off, and the high valuation cannot be supported.

But Kuaishou has a card that others don't have. It understands the real production chain of the Chinese video content industry very well. What really determines whether an AI product can be commercialized is often not the model parameters, but who understands the real - world workflow better.

This is the biggest difference between Keling and Sora. It is also the most subtle difference between Keling and ByteDance's and Tencent's AI video products.

In the next three quarters, every number in the financial report will give the coldest verdict.

[Beyond the Page] Words:

In the past few years, Kuaishou has always seemed like a company that has proven it can make money.

But what the capital market really likes is never just the ability to make money, but the ability to redefine the future.

In the short - video era, Kuaishou has always lived in the shadow of Douyin. In the AI - video era, it has a chance to leave that position for the first time.

So what really matters in this financial report is not how much the profit has dropped or how much Keling has grown.

It is to tell the outside world that Kuaishou is no longer being "Kuaishou". What it is doing now is to bet on a new identity with Kuaishou's assets.

This article is from the WeChat official account "Beyond the Page", author: Ban Jun. Republished by 36Kr with authorization.