Produced by | Zhixie Island

It is a rare occurrence in the annals of internet history for a company valued at hundreds of billions to stake its entire future on the IPO prospects of an AI unicorn.

On August 19, Kuaishou released its financial report for the second quarter of 2026.

The data revealed that Kuaishou achieved RMB 35.5 billion in revenue for the quarter, marking a modest year-on-year (YoY) increase of just 1.4%—the slowest quarterly revenue growth since its listing. Adjusted net profit stood at RMB 3.9 billion, a significant decline of 30.3% YoY. The gross margin also decreased from 55.7% in the same period last year to 51.6%, indicating a contraction in profitability.

The day following the release of the financial report, Kuaishou's stock price plummeted by 11%, closing at HK$33.64, nearing its all-time low since listing. As of August 20, Kuaishou's stock price had dropped by over 40% year-to-date, with the company's total market capitalization shrinking to less than HK$150 billion.

Amidst the overall bleak financial landscape, Kling AI emerged as the sole bright spot in the report.

In the second quarter, Kling AI generated revenue exceeding RMB 850 million, representing a remarkable YoY increase of over 200%, with its global user base surpassing 100 million.

At the product level, Kling AI pioneered the industry's first native 4K video direct output feature, enabling professional-grade quality output for creative scenarios such as film, television, and advertising. At the recently concluded Cannes International Festival of Creativity, two commercial advertisements deeply generated using Kling AI secured one silver and two bronze awards.

These accomplishments underscore Kling AI's rapid progress in both technological innovation and commercial monetization.

However, revenue of RMB 850 million accounted for a mere 2.4% of Kuaishou's total revenue of RMB 35.5 billion. Excluding Kling AI's contribution, all of Kuaishou's remaining businesses have effectively entered a phase of negative growth.

Growth in online marketing services slowed from 9.3% in the first quarter to 4.4% in the second quarter. Live-streaming revenue declined YoY for three consecutive quarters, with the second-quarter drop widening to 13.5%. E-commerce revenue has ceased to disclose gross merchandise volume (GMV) data.

The truly harsh reality unveiled by this financial report lies in the numbers, which confirm the disappearance of previous growth drivers.

Just one month prior to the release of the financial report, Kuaishou completed an independent spin-off financing for Kling AI. Based on Kling's post-money valuation of US$18 billion and Kuaishou's 68% stake, the value of Kuaishou's Kling equity stands at approximately US$12 billion, equivalent to over HK$90 billion. Combined with cash on hand, this exceeds Kuaishou's parent company's current total market capitalization of less than HK$150 billion.

This implies that capital markets are making an extremely harsh valuation judgment on Kuaishou's traditional businesses: the company's online marketing and e-commerce businesses, with annual revenue exceeding RMB 140 billion, a massive user platform with nearly 800 million monthly active users, and a mature commercial system still generating nearly RMB 4 billion in net profit per quarter—all these assets, when packaged together, have been assigned a market valuation of zero, or even negative.

A company still generating stable profits and worth hundreds of billions is being priced by capital markets as a fund, with Kling AI as its sole core holding.

I. All Three Growth Engines Have Stalled

Kuaishou's core business comprises three main segments: online marketing services, live-streaming, and other services, primarily e-commerce and Kling AI.

The second-quarter financial data clearly points to the same conclusion: all three business lines have unequivocally entered a phase of slowing growth or revenue contraction. Kuaishou's core business growth momentum has significantly weakened, with little likelihood of reacceleration in the short term.

Online marketing services, Kuaishou's largest revenue source, contributed RMB 20.6 billion in the second quarter, accounting for 58% of total revenue. However, the 4.4% YoY growth rate marks the lowest level in three years and falls significantly short of market expectations of 6% growth.

The fundamental reason for the precipitous decline in ad growth is the loss of momentum in traffic acquisition. In the second quarter, Kuaishou's daily active users (DAUs) reached 412.3 million, up just 0.8% YoY, nearly stagnant.

Although monthly active users (MAUs) hit a record high of 797 million, with a net increase of approximately 25 million in the quarter, most of these new users were low-frequency returning users attracted by content such as CBA copyrighted events and short dramas, whose willingness to pay and consumption capacity are far lower than Kuaishou's core "Laotie" user base.

While Kuaishou appears to have increased its traffic scale, its core user pool with true commercial value has not expanded.

Meanwhile, the macro consumption environment remains sluggish, leading to across-the-board budget cuts by advertisers. The combination of these factors makes the decline in ad growth almost inevitable.

With DAU growth hitting a ceiling and ad load rates also capped, growth in online marketing revenue can only rely on slow improvements in user value—a path that is inherently limited.

The live-streaming business faces even greater pressure. Second-quarter live-streaming revenue stood at just RMB 8.7 billion, down sharply by 13.5% YoY. This marks the third consecutive quarter of YoY decline, with the rate of decline continuing to widen.

Kuaishou officially attributed the decline to "proactive adjustments in high-income streamer composition to promote a healthier live-streaming ecosystem," but multiple factors are at play behind this adjustment.

In late 2025, Kuaishou's live-streaming rooms suffered large-scale attacks from black-market and gray-market operations, exposing deep-seated vulnerabilities in the platform's content governance and risk control systems. In February 2026, Kuaishou was fined RMB 119 million in administrative penalties, forcing the platform to significantly restrict the operating space for high-tip streamers.

While Kuaishou appears to be making proactive adjustments, it is more accurately responding passively to regulatory and risk control requirements. Across the industry, showcase live-streaming has entered a clear downward cycle, with regulatory policies tightening continuously, user tipping willingness declining yearly, and top streamers' revenue models facing higher compliance risks. Kuaishou's live-streaming business remains far from returning to growth.

Source: Kuaishou

The e-commerce business presents the most intriguing developments. Starting in 2026, Kuaishou ceased disclosing quarterly and annual e-commerce GMV data. Looking back at historical trends, Kuaishou's e-commerce GMV growth rates from 2021 to 2025 were 78%, 33%, 31%, 17%, and 15%, respectively, showing a clear year-over-year decline.

When a company stops disclosing a core operating metric, there is typically only one reason: the number is no longer worth showcasing. In the financial report, Kuaishou management shifted focus for the e-commerce business to metrics such as "merchant quality, ROI, return rates, and proportion of branded merchants," moving from pursuing transaction scale to emphasizing service provider positioning. This adjustment itself indicates that e-commerce can no longer serve as a high-growth engine.

Not a single one of the three business lines can still accelerate growth. Kuaishou's core business took fifteen years to expand from 0 to 1 and from 1 to N, and now it is undergoing a transition from N to no growth.

This is not a short-term cyclical fluctuation but an inevitable situation for a mature platform after user scale hits a ceiling, industry structure stabilizes, and regulatory frameworks gradually mature.

II. Kling AI: Critical but Costly

Kling AI has become the only business still accelerating at Kuaishou.

In the second quarter, Kling AI generated revenue of RMB 850 million, up over 200% YoY and increasing from RMB 650 million in the previous quarter. Without Kling AI, Kuaishou's financial report might not even have a positive narrative.

Tencent's actions further illustrate the point: while leading Kling's investment round, Tencent simultaneously reduced its stake in Kuaishou's parent company. Kling has become the only asset recognized by capital markets within Kuaishou.

Kuaishou CFO Jin Bing stated during the earnings call that Kling AI's commercialization path has taken initial shape, expanding from C-end creator paid subscriptions to B-end professional creative scenarios such as film, television, and advertising.

Source: Kuaishou

However, a clear mismatch exists between Kling AI's commercial achievements and its underlying resource consumption.

In the second quarter, Kuaishou's R&D expenses reached RMB 4.58 billion, up 34.7% YoY, with nearly RMB 1.2 billion in increases almost entirely flowing into AI large model training and compute infrastructure construction. Selling costs grew 10.7% YoY, far outpacing the 1.4% revenue growth, with bandwidth and server hosting costs up nearly 20% YoY.

Kuaishou's 2025 full-year net profit stood at RMB 20.6 billion, while its 2026 full-year capital expenditure plan reached RMB 26 billion, meaning operating profit can no longer cover equipment procurement and compute investments.

According to Kling's IPO roadshow materials, Kling incurred losses of RMB 500 million in 2024, widening to RMB 1.9 billion in 2025, while revenue stood at just RMB 1.1 billion during the same period. Given current investment intensity, Kling remains far from achieving break-even.

Changes in the competitive landscape also pressure Kling.

ByteDance's Seedance holds a clear advantage in China's domestic video generation sector, with nearly 95% penetration in the short drama industry. The late-July release of Seedance 2.5 extended single-generation duration to 30 seconds, while Kling remains at 15 seconds.

ByteDance's 2026 capital expenditure plan stands at RMB 200 billion, nearly eight times Kuaishou's RMB 26 billion plan. The magnitude gap in compute investments suggests the technological gap may widen further.

Moreover, Kling's core R&D talent continues to drain. In August 2025, Kling's technical lead Zhang Di departed to join Alibaba. In August 2026, senior researcher Wang Xintao, considered a core R&D pillar, also confirmed his departure. Losing two key technical personnel within a year is significant in the highly talent-dependent video generation sector.

While Kling AI undeniably represents Kuaishou's most promising growth business, its growth comes with extremely high resource consumption while facing simultaneous pressure from competitors like ByteDance and MiniMax across technology, capital, and pricing dimensions.

Kling's first-mover advantage is gradually being eroded, and the investment required to maintain leadership creates clear tension with the resource support Kuaishou's core business can provide.

III. Conclusion

Kling AI's spin-off financing represents Kuaishou's most critical and risky strategic decision to date.

The transaction means Kuaishou has finally secured an independent capital channel for Kling, no longer needing complete reliance on parent company funding for R&D and compute investments. However, the cost is clear: Kuaishou's stake in Kling diluted from 100% to 68.33%, ceding nearly one-third of equity to external investors.

The earnout clauses in the financing agreement further institutionalize this risk. If Kling fails to complete an IPO by October 30, 2031, this round's investors have the right to demand repurchase at the original investment principal plus 8% annual simple interest, with Kuaishou bearing joint repurchase obligations.

In other words, Kuaishou's fate is now tied to a five-year countdown. If Kling successfully lists independently, Kuaishou, as the controlling shareholder, will realize paper value. If not, Kuaishou must repurchase the equity for over US$3 billion, shouldering heavy rigid repayment obligations.

Regardless of the outcome, Kling's massive losses will continue to appear on Kuaishou's consolidated financial statements until its IPO. Financing proceeds go to Kling, while losses remain on Kuaishou's books—a separation without true independence.

What truly unsettles is the structural transformation occurring at Kuaishou, which is evolving from an internet company operating a short video platform into an investment vehicle holding a single AI asset.

A fund's net asset value depends on the price fluctuations of its holdings. When Kling's valuation rises, Kuaishou's market cap follows. When Kling's valuation falls, Kuaishou has no hedge.

Kuaishou has placed its future on a single bet. The odds and potential payoff remain uncertain to all.

Cover Source: No Betting

Featured Image Source: Kuaishou Official Weibo

Disclaimer: The article content is for reference only and does not constitute investment advice. Investors act at their own risk.

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