On May 29th, KINGSOFT released a first-quarter earnings report marked by extreme business divergence. The company's total revenue for the quarter was 2.417 billion yuan, a mere 3% increase year-on-year. Net profit attributable to shareholders surged 284% to 1.091 billion yuan. However, this seemingly impressive profit growth was not driven by improved core operations but was primarily supported by a massive profit contribution from an associate company, which swung from a loss of 12.329 million yuan in the same period last year to a profit of 1.859 billion yuan.
Breaking down the revenue structure reveals a stark split between the two main business segments. Office software and services revenue grew 24% year-on-year to 1.613 billion yuan, while online gaming and other business revenue was only 804 million yuan, down 22% year-on-year and also down 7% quarter-on-quarter. The performance of the gaming business not only fell short of market expectations but became the primary factor dragging down overall revenue. A research report from CICC pointed out that the operating profit for the first quarter was only 395 million yuan, a 34.3% year-on-year decline, mainly due to the gaming business underperforming expectations.
Disclosed alongside the financial results was another signal causing greater market unease: just before the Q1 report in early May, KINGSOFT was officially removed from the Hang Seng Tech Index.
During the earnings conference call, KINGSOFT CEO Zou Tao offered a rather blunt assessment: the year-on-year decline trend in Q1 gaming revenue "will continue for the next one to two quarters," as internal strategic adjustments are still actively underway.
Zou Tao's assessment is not alarmist. The company's gaming subsidiary, Xishanju, is facing systematic challenges across three categories of products, forming the structural root of the current pressure on the gaming business.
The First Challenge: Mature Products Nearing Their Ceiling
The "Swordsman" series, as Xishanju's core IP, has its flagship product "JX Online 3" operating for over 16 years. While active users remain stable, growth potential is visibly slowing, with both revenue and popularity showing a declining trend. Zou Tao admitted on the call that "the classic Swordsman series, including 'JX Online 3,' forms the foundation of Xishanju's entire business." However, when an IP with a 16-year history bears the brunt of revenue responsibility, this statement sounds more like a sigh: the foundation remains, but the ground is sinking.
The Second Challenge: New Game Launches Failing to Meet Expectations
The sci-fi mech game "Jie Xian Ji," with a development cycle exceeding ten years and massive investment, launched in July 2025. Its peak concurrent users rapidly dropped from 132,800 on launch day to under 5,000, with a Steam China region approval rating of only 47%. Zou Tao directly acknowledged in this earnings call that "the launch of 'Jie Xian Ji' last year indeed did not meet expectations." The game "Goose Goose Duck," launched this January, gained over 30 million new users and maintains a DAU around 3 million, but the team has explicitly prioritized user growth over monetization for now. Another previously highly anticipated title, "Snowbreak: Containment Zone," was indefinitely suspended in March, leading to a phase of revenue decline.
The Third Challenge: Concentrated Shutdown of Non-Strategic Projects
As early as the Q4 2025 earnings call, Zou Tao clearly stated that Xishanju is "actively undergoing strategic adjustments, scaling back non-strategic projects." This means that currently profitable non-core game products also face being scaled down. In other words, before the new growth engine truly ignites, Xishanju has already proactively shut down some auxiliary engines that were still running—this is undoubtedly a direct contributor to the continued short-term revenue decline.
A Glimmer of Hope in the Office Segment
If there is a silver lining in this quarterly report, it lies in the WPS segment. Office software and services revenue was 1.613 billion yuan, a 24% year-on-year increase, with all three core businesses growing, continuing to support the group's total revenue. In the report, Lei Jun emphasized that Kingsoft Office will focus on advancing the deployment of AI Agent products, empowering intelligent office scenarios with WPS 365, and promoting internationalization. In Q1, WPS 365 business revenue surged 60.79% year-on-year to 244 million yuan, and WPS software related to government affairs achieved 32.24% growth. These two businesses have become the most reliable growth engines for Kingsoft Office.
However, on the consumer side, risk signals also warrant attention. The global monthly active devices for WPS Office in Q1 decreased by approximately 5 million compared to the end of 2025, mainly due to a decline in mobile user numbers. The potential implication of this signal is: if the gaming business remains under pressure long-term, whether the WPS segment alone has sufficient capacity to support the group's valuation system needs to be assessed with a more cautious perspective.
Analyst Reactions and Lingering Questions
Following the Q1 report, several investment banks adjusted their views on KINGSOFT. CICC maintained its "Outperform" rating but, considering the group's removal from the Hang Seng Tech Index, increased the conglomerate discount rate from 55% to 60%, lowering the target price by 12.5% to HK$28. Bank of America Securities took a more cautious stance, reiterating a "Neutral" rating and lowering the target price from HK$27 to HK$24, noting that narrowing gaming business margins dragged the operating profit margin down by 9.4 percentage points. Yuanta Securities maintained a Buy rating with a target price of HK$46.
The divergence in ratings highlights a single core point of contention: is what Zou Tao described as "two more quarters of hardship" merely a transitional pain, or is it a precursor signal that Xishanju is entering a period of slow, protracted growth?
For investors, KINGSOFT's current valuation has already absorbed most of the negative factors. However, the true inflection point in value will not appear between optimistic expectations on paper and the repair of financial statement data. Instead, it depends on how long the veteran "JX Online 3" can hold on, and whether Zou Tao's team can truly prove itself in the new product cycle in the second half of the year. The clock has ticked through too many quarters, and the window for KINGSOFT to prove itself is gradually narrowing.
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