The recent earnings season in Hong Kong stocks has delivered a series of shocking "annual report slumps."
Following a stunning report from Pop Mart International Group Ltd. showing 184% revenue growth, which paradoxically led to a 30% stock price drop over two days, a similar "horror story" has now unfolded for Kuaishou-W.
On March 25, Kuaishou-W released its full-year 2025 results: total revenue reached 142.8 billion yuan, a year-on-year increase of 12.5%; adjusted net profit was 20.6 billion yuan, up 16.5% year-on-year, marking the second consecutive year of profits exceeding ten billion yuan.
However, the stock opened sharply lower the next day, plunging as much as 14% at one point. Its market capitalization evaporated over HK$30 billion in a single day, even dragging down the Hang Seng Tech Index. Since the peak in the fourth quarter of last year, Kuaishou-W's share price has been halved.
With profits hitting a new high, why the severe stock price decline? What hidden risks in this seemingly flawless financial report are unsettling investors?
**01** **Growth "Speed Bump": Traffic Dividends Hit a Ceiling** Judging solely by net profit, Kuaishou-W's 2025 performance was nearly perfect. Revenue of 142.776 billion yuan and operating profit of 20.637 billion yuan increased by 12.5% and 35% respectively compared to 2024. Average daily active users reached 410 million, average monthly active users hit 725 million, average online marketing service revenue per daily active user was 198.6 yuan, and total e-commerce GMV reached 1.6 trillion yuan—all four metrics showed improvement over 2024. Kuaishou-W also demonstrated commitment to shareholder returns, with cumulative annual dividends of HK$5 billion plus a HK$3.12 billion share repurchase, resulting in a shareholder return rate of 3.5%.
Yet, within these impressive figures lies a concerning trend: Kuaishou-W's growth is "decelerating." Data shows that monthly active users in Q4 2025 were 741 million, with the year-on-year growth rate abruptly dropping from over 3% in the first three quarters to just 0.69%, the lowest level since its listing. More critically, daily active users declined sequentially, falling from 416 million in Q3 to 408 million in Q4, a loss of approximately 8.7 million users. This indicates that Kuaishou-W, once dominant in lower-tier markets with rapid user growth, is approaching saturation in domestic market penetration.
Among its three core business segments, the livestreaming business became a drag. Livestreaming revenue in Q4 2025 fell 1.9% year-on-year, making it the only segment with negative growth. The GMV growth rate for its core e-commerce business, central to its commercial ecosystem, has declined sharply from 78% in 2021 to 15% in 2025. An alarming signal is Kuaishou-W's announcement that, starting Q1 2026, it will no longer disclose GMV figures separately. When an e-commerce platform stops reporting core transaction data, the market often interprets it as an inability to sustain growth. Compounding this, competitors like Douyin and Video Account continue to advance, encroaching on Kuaishou-W's market share and diverting users. As the user pool stops expanding or even shrinks, any business reliant on traffic faces severe challenges.
**02** **Cash Flow Pressure: Financial Vulnerabilities Beneath the Profits** If slowing user growth is a strategic concern, the emerging cash flow pressures within the financial data present a more immediate test. Although Kuaishou-W has been profitable for consecutive years, its cash flow strain cannot be ignored.
The most direct signal comes from operating cash flow. While net operating cash flow remained positive in 2025, it decreased significantly compared to 2024. More notably, cash and cash equivalents on the balance sheet dropped from approximately 12.7 billion yuan at the end of 2024 to about 11.2 billion yuan at the end of 2025, while the company's total borrowings increased again in 2025. Having had no borrowings in 2023, total borrowings surged to 11.1 billion yuan in 2024 and climbed further to 13.066 billion yuan in 2025. This suggests the company is using external debt to cover potential operational funding gaps or support its extensive investment activities.
Simultaneously, accounts receivable, closely tied to operations, expanded rapidly. In 2025, accounts receivable jumped from 6.46 billion yuan in 2024 to 8.13 billion yuan, a significant increase of 25.8%, far exceeding the 12.5% revenue growth. This indicates a slower collection speed from customers after sales, leaving substantial cash tied up on the books, which not only increases bad debt risk but also directly impacts operating cash inflow. On costs, Kuaishou-W has adopted a frugal approach; for instance, the ratio of sales and marketing expenses to revenue decreased from 32.4% in 2024 to 29.6% in 2025.
Additionally, a less noticeable detail: income tax expense surged to 1.85 billion yuan in 2025, an increase of over ten times compared to 2024. While this reflects improved profitability, it also indicates that previous tax benefits, such as those from deferred tax assets, are diminishing. Future actual tax burdens are set to increase significantly, further eroding the company's free cash flow.
**03** **AI's "Double-Edged Sword": A Promising Story with Costly Implications** With signs of slowing growth in its main businesses, Kuaishou-W is pinning its hopes on AI. Kling AI was undoubtedly the star of this earnings report. It generated 340 million yuan in revenue in Q4 2025 alone, contributing over 1.04 billion yuan for the full year. Its monthly revenue exceeded $20 million in December, achieving an annualized revenue run rate of $240 million. During the March earnings call, management revealed this figure had surpassed $300 million by January 2026.
Technologically, Kuaishou-W released the Kling O1, 2.6, and 3.0 series models within a year, achieving integrated multimodal input and output for text, image, audio, and video, placing it in the industry's top tier for capabilities like scene control, character motion accuracy, and audio-visual synchronization. More importantly, AI is already benefiting core operations. Beyond significant gains in advertising, in e-commerce scenarios, the generative search architecture OneSearch boosted mall search orders by nearly 3% in Q4 2025. In R&D, self-developed AI programming tool CodeFlicker now accounts for over 40% of newly generated code.
Management expressed strong confidence, with Kuaishou Technology's founder and CEO Cheng Yixiao stating the company has strong confidence that Kling AI will achieve revenue growth of over 100% year-on-year in 2026.
However, the capital market's reaction was cold. The issue lies with another set of numbers. The CFO, Jin Bing, clearly stated during the earnings call that the group's total Capex investment for 2026 is expected to reach approximately 26 billion yuan, an increase of 11 billion yuan from 2025, primarily for computing power investments in the Kling large model and other foundational models. This means that massive AI investments in the coming years will directly erode short-term profits.
Huatai Securities predicts that Kuaishou-W's adjusted net profit for 2026 could fall 15% year-on-year to 17.6 billion yuan due to rising depreciation and salary expenses. Nomura directly cut its target price for Kuaishou-W from HK$77 to HK$57, downgrading its rating from Buy to Neutral. Morgan Stanley also issued a research report, lowering its earnings per share forecasts for 2026-2028 by 17% to 24%, reducing its target price by 25% from HK$73 to HK$55, with a "Equal-weight" rating.
This exposes the harshest reality in the current Hong Kong stock market: investors are no longer buying into the "burn cash for future growth" narrative. Similar to Bilibili Inc., which also emphasized AI initiatives in its annual report and faced a market sell-off, AI is no longer seen as just an enabler or a bonus. Instead, the AI narrative is now perceived as a short-term negative factor.
Kling's competitive environment is also intensifying rapidly. ByteDance's launch of the Seedance2.0 video generation model in early 2026 attracted global attention. Leveraging the vast ecosystems of Douyin and CapCut, Seedance2.0 has natural traffic inlets and synergistic advantages, achieving faster penetration in overseas markets than standalone applications. Furthermore, OpenAI's official shutdown of Sora on March 24 delivered a sobering blow to all AI video generation models.
Comments