The video-sharing giant Kuaishou-W (ASX: 01024) experienced a rollercoaster of emotions within a single week due to two significant announcements.
On the evening of July 6, Kuaishou disclosed that TENCENT (ASX: 00700) had divested 273 million Class B shares via an off-exchange block trade. This transaction reduced Tencent's ownership from 15.68% to 9.37%, consequently removing it from Kuaishou's list of major shareholders.
Based on Kuaishou's closing price of HK$46 per share on July 6, this divestment was valued at over HK$125 billion.
Although Kuaishou stated that this move would not significantly impact its operations, its share price tumbled more than 12% on July 7. The stock rebounded by 8.7% on July 8, with the company's market capitalisation standing at approximately HK$1.903 trillion.
Strategic Shift in Capital Allocation
Notably, just days before this announcement, Kuaishou had revealed that its video-generation large language model subsidiary, Kling AI, had secured its first round of funding. In this round, Tencent, as an initial investor, contributed 1.363 billion yuan for a 1.12% stake.
Analysts suggest these two transactions represent Tencent's strategic capital reallocation for the AI era. Compared to Kuaishou, which faces slowing growth and profit pressures, Kling AI, with its global commercialisation capabilities, may offer superior growth prospects.
Kuaishou's financial reports show Kling AI generated over 650 million yuan in revenue for the first quarter of this year, a year-on-year increase exceeding 300%. In March, its annualised revenue run rate approached $5 billion.
However, Kling's impressive performance has been partly fuelled by significant investment from its parent company, Kuaishou. Disclosures indicate Beijing Kling incurred losses of 500 million yuan in 2024 and 1.9 billion yuan in 2025. Furthermore, Kling faces intense competition from rivals like ByteDance's Seedance and Alibaba's HappyHorse.
End of a Long-Term Partnership?
Following years of investment, Tencent's substantial divestment, cashing out tens of billions of Hong Kong dollars, marks its exit as a major Kuaishou shareholder.
Kuaishou's voluntary announcement confirmed the sale to several independent third-party buyers unaffiliated with the company.
Prior to the official notice, foreign media had reported that Tencent's wholly-owned subsidiary Tencent Mobility planned the block sale, aiming to raise up to $1.6 billion. Kuaishou's statement confirmed the rumours, while emphasising Tencent's continued confidence in the company's long-term prospects and their ongoing strategic partnership.
The partnership between Tencent and Kuaishou began in the summer of 2014. Tencent participated in Kuaishou's Series B financing round that June, followed by subsequent investments in Series C, D, E, and F rounds. By the time of Kuaishou's IPO in February 2021, Tencent was its largest shareholder with a 17.74% stake post-dilution. At its listing debut, Tencent's holding was valued at approximately HK$218.6 billion.
Commercially, the two companies have provided mutual marketing and promotion services. Kuaishou's 2025 financials show it paid Tencent 1.819 billion yuan, while receiving 1.34 billion yuan from Tencent.
Despite Kuaishou's reassurances, investor sentiment was negatively impacted. Citi noted that Tencent's divestment could hurt market sentiment for Kuaishou and raise concerns about further sales of its portfolio holdings. However, citing Kuaishou's unchanged fundamentals and Kling's potential, the bank maintained its "Buy" rating on the stock.
Betting on the "Offspring" with an IPO Deadline
Shortly before the divestment news, Kuaishou announced the completion of Kling AI's first funding round. According to a July 2 announcement, initial investors agreed to inject a total cash capital of 13.824 billion yuan into Beijing Kling.
The agreement allowed for additional investors to join within 60 days, with the total capital increase capped at 20.447 billion yuan, representing about 16.67% of Beijing Kling's enlarged registered capital.
On the signing day, 15 additional investors joined, contributing a further 5.224 billion yuan. Following this external funding of up to $3 billion, Kling's valuation reached $18 billion, slightly below earlier market whispers of $20 billion.
The investor group notably included all three Chinese internet giants—Baidu, Alibaba, and Tencent. Entities controlled by Tencent invested 1.363 billion yuan for a 1.12% stake.
The funding agreement also contained a share repurchase clause. If Beijing Kling fails to complete an IPO within an agreed timeframe or finalise all restructuring-related regulatory procedures within nine months, investors have the right to demand a repurchase of their equity at the original investment cost plus an 8% annualised simple interest return.
Additionally, Kuaishou made a non-competition commitment, promising not to control any entity primarily engaged in the video-generation LLM business for five years or until it no longer holds a controlling stake in Kling.
Strong Commercial Performance Amid Fierce Rivalry
Kling AI, independently developed by Kuaishou's AI team and launched in 2024, is positioned as a next-generation video-generation model. It has gained rapid global traction, maintaining a leading position in multimodal video generation.
With a clear commercial strategy, Kling AI offers paid subscription services to professional consumers and API services to enterprise clients. Official data shows its global user base exceeded 100 million by June, with registered users in 224 countries and regions. Enterprise clients neared 50,000.
Financially, Kling's revenue for Q1 this year surpassed 650 million yuan, growing over 300% year-on-year. Its annualised revenue run rate neared $5 billion in March. This strong performance made its segment the fastest-growing revenue driver for Kuaishou in the quarter.
However, Kling's commercial success comes at a high cost. As of December 31, 2025, Beijing Kling reported total assets of 244 million yuan, liabilities of 253 million yuan, and a net asset value of -9 million yuan. It recorded unaudited net losses of 500 million yuan in 2024 and 1.9 billion yuan in 2025.
In the broader industry, Kling competes directly with ByteDance's Seedance and Alibaba's HappyHorse. These three domestic players reportedly top the global rankings for text-to-video models. However, Seedance is said to command over 90% of the domestic short drama market and a leading position in other high-revenue AI video sectors like gaming and advertising.
Industry observers note that while investors might prefer Seedance, its closed funding status makes Kling a compelling alternative. The market now watches to see if Tencent's strategic pivot from Kuaishou to its "offspring" Kling will yield more substantial returns.
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