Summary of Key Points
Kuaishou's financial report for the second quarter shows relatively modest figures, but the real story lies in its corporate restructuring: the self-developed AI video model "Keling" has been split off for independent financing (with over 30 institutions competing to invest, valuing it at $18 billion). Meanwhile, Tencent reduced its stake in Kuaishou and realized a profit of HK$12.5 billion before reinvesting in Keling. Behind this move is Kuaishou's desire to enhance the valuation of Keling and alleviate the financial pressure associated with AI development costs; Tencent, on the other hand, is "selling old assets to buy new ones," betting on Keling's future potential. However, there is a significant divergence in the market's perception of Kuaishou's value—some highly regard Keling as a valuable asset, while others view its core business as a liability. Keling itself faces challenges such as difficulty in generating profits, intense competition from rivals, talent loss, and the pressure to go public within five years.
Why Split Keling?
Keling is Kuaishou's AI video model launched in 2024 (capable of generating both text and image-based videos, and it's the first native 4K model in the industry). It has achieved remarkable success, with over 100 million global users, nearly 50,000 corporate clients, and over 100 million views for its AI short film "Paper Phone." However, it is also a costly venture: in 2025, Keling resulted in a loss of HK$1.9 billion despite generating HK$1.1 billion in revenue, leaving the company with a net asset deficit of HK$9 million. With Kuaishou's total revenue for 2025 being HK$20.6 billion, Keling consumed one-tenth of this profit alone. In 2026, Kuaishou's capital expenditure reached HK$26 billion, with most of it allocated to AI infrastructure, leading to a 36% decrease in profits.
The key factor is the difference in valuation: as a "content company," Kuaishou's market value is 1.5 times its annual revenue; if Keling were considered a separate "AI company," its valuation would be 36 times its annual revenue—essentially, treating the same asset differently depending on how it is categorized. Therefore, Kuaishou decided to split off Keling to reduce financial pressure and significantly increase its valuation.
Tencent's Asset Reallocation Strategy
On July 6, Tencent sold 273 million shares of Kuaishou, realizing a profit of HK$12.5 billion and reducing its stake from 15.68% to 9.37%. However, just four days prior (on July 2), it had invested HK$1.363 billion in Keling. This doesn't indicate a lack of confidence in Kuaishou; rather, it's part of a strategic asset reallocation:
- The funds from the sale of Kuaishou shares were used to repurchase its own stocks (nearly HK$10 billion in one month), converting "less desirable" assets into cash and then back into its own shares.
- The rationale behind investing in Keling is that it represents Kuaishou's most valuable future potential. Tencent is buying new shares of Keling for HK$1 and selling its old shares for HK$9, betting on their potential appreciation after Keling goes public.
Interestingly, Kuaishou's stock price rose by 8% on the day of the sale—indicating that the market understood Tencent's intention to focus on its most valuable asset.
Divergent Market Valuations
Previously, institutions valued Kuaishou as a single entity. Now, they are evaluating it separately (using the SOTP method), considering cash, Keling's equity, and its core business. The results show a wide range of opinions:
- Optimistic institutions (such as CICC) estimate Kuaishou's value at HK$72.8 billion, while pessimistic ones (like a certain institution) estimate it at only HK$39.4 billion—a difference of nearly 150%.
- What's even more concerning is that Kuaishou has HK$12.13 billion in cash on its balance sheet, and the equity of Keling (valued at $12 billion based on the financing price) amounts to approximately HK$9.36 billion. Together, these assets exceed Kuaishou's current market value of HK$16.35 billion—suggesting that the market views Kuaishou's core businesses (advertising, live streaming, and e-commerce) as having a negative value!
The reason for this is the lack of growth in these core businesses: advertising revenue has not met expectations, live streaming revenue continues to decline, and e-commerce sales figures are not being disclosed. JPMorgan even stated that Kuaishou's core business, which could generate HK$3 billion in profit, is considered a liability within the financial model—similar to "a chicken that lays eggs being valued too low."
Challenges Faced by Keling
Despite rapid growth (with revenue tripling in the second quarter and 70% of sales coming from overseas), Keling faces several challenges:
1. Profitability Issues: It incurred a loss of HK$1.9 billion in 2025, and although it raised HK$3 billion in funding, this amount is only enough to cover its expenses for one year. ByteDance and Google invest significantly more in video generation technology each quarter.
2. Intense Competition: ByteDance controls 80% of the domestic market and has introduced a 30-second video format (compared to Keling's 15-second format). Additionally, an open-source model called H3 is available for free and can be modified and used by others.
3. Talent Loss: Key figures at Keling, such as Zhang Di (who later joined Alibaba's Happy Horse) and Wang Xintao, have left the company this year—a major setback considering the critical role they played in its development.
The Hidden Risks of the Bet
When institutions invested in Keling, they agreed to a conditional agreement: Kuaishou must go public by October 2031; otherwise, it will have to repurchase their shares at an annualized rate of 8% (with Kuaishou bearing joint liability). This means that if Kuaishou fails to meet this deadline, it will have to repay the principal and interest on a significant amount.
In five years, Keling will need to spend billions more on development and compete with giants like ByteDance. Whether it can achieve its goal of going public is uncertain.
The Current Situation
Kuaishou is like a puzzle piece that has been torn apart: Keling represents the "hope for the future," while its core businesses are seen as a "burden in the present." Tencent is repositioning its investments, and institutions are evaluating it differently. Some are optimistic about Keling's potential, while others are concerned about the decline of its core businesses. This division reflects the current reality of Kuaishou—its success depends on whether it can turn its "future" into a tangible reality, but the path ahead is undoubtedly challenging.
(Note: Data comes from Kuaishou's financial reports, Hong Kong Stock Exchange announcements, and institutional research reports; it does not constitute investment advice.)