Kuaishou Q2 profit falls 36% as AI spending weighs on margins

Kuaishou reported Q2 net profit of RMB 3.15 billion, down 36% year over year, as heavy AI investment squeezed margins.

"We are confident in the long-term competitiveness of Kling AI," Chairman and CEO Cheng Yixiao said, citing continuous model iteration, product experience improvements, and expansion of the professional creator ecosystem.

Revenue rose 1.4% to RMB 35.5 billion, slightly above the RMB 35.51 billion consensus. Adjusted net profit fell 30.3% to RMB 3.91 billion, while gross margin declined to 51.6% from 55.7% a year earlier as R&D expenses jumped 34.7% to RMB 4.58 billion, driven mainly by model-training costs.

Shares fell 4% on Aug. 19, with short-selling turnover reaching HK$982 million at a 31.3% ratio. The stock opened 4.8% lower at HK$36 on Aug. 20.

Kling AI emerged as the quarter's bright spot, generating more than RMB 850 million in revenue, up more than 200% year over year and roughly 30% sequentially from RMB 650 million in Q1. First-half cumulative revenue exceeded RMB 1.5 billion. Global users surpassed 100 million across 224 countries and regions, with enterprise customers approaching 50,000.

In July, Kuaishou restructured Kling AI, bringing in Tencent, Alibaba, and Baidu in a financing round exceeding RMB 19 billion, reducing Kuaishou's stake to about 68%. The move shifts part of the computing-power capital burden off the parent's balance sheet.

Online marketing services, the largest segment, grew 4.4% to RMB 20.6 billion, or 58.1% of revenue. Live streaming fell 13.5% to RMB 8.7 billion, while other services including e-commerce and Kling AI rose 18.5% to RMB 6.2 billion. Daily active users hit a record 412.3 million, with monthly active users at 797.3 million.

CFO Jin Bing said free cash flow was positive in Q2, with a goal of maintaining positive group-level free cash flow in the second half. Total available funds reached RMB 121.3 billion. Shareholder returns since the start of 2026, including HK$2 billion in buybacks and HK$3 billion in dividends, approach last year's full-year total.

The profit decline signals that Kuaishou's AI transition remains in a high-investment phase, with the drag on margins widening rather than narrowing. Investors will watch whether Kling AI sustains its growth trajectory and improves unit economics, and whether the company pursues an independent Hong Kong IPO for the unit by 2027.

This article is for informational purposes only and does not constitute investment advice.