---
title: "Kling AI Achieves $500 Million ARR: Kuaishou Resolves a Two-Year Suspense"
type: "News"
locale: "en"
url: "https://longbridge.com/en/news/287887643.md"
description: "Kling AI's annualized revenue reached approximately $500 million, nearly quadrupling year-over-year, becoming Kuaishou's sole high-growth engine. Institutional divergence centers on AI commercialization capabilities, with the market revaluing the company from an \"advertising firm\" to an \"AI + content platform.\""
datetime: "2026-05-28T09:04:15.000Z"
locales:
  - [zh-CN](https://longbridge.com/zh-CN/news/287887643.md)
  - [en](https://longbridge.com/en/news/287887643.md)
  - [zh-HK](https://longbridge.com/zh-HK/news/287887643.md)
---

# Kling AI Achieves $500 Million ARR: Kuaishou Resolves a Two-Year Suspense

**Introduction**

On May 27, 2026, after Kuaishou released its Q1 financial report, Futu maintained a Buy rating but lowered its target price from HK$106 to HK$82. Citigroup reduced its target from HK$95 to HK$72, and Morgan Stanley cut theirs from HK$73 to HK$55. The collective downgrade of over 20% by these four institutions put pressure on the stock price in after-hours trading. However, during the same conference call, CEO Cheng Yixiao spent nearly half the time discussing Kling AI: Q1 revenue exceeded RMB 650 million, equivalent to an annualized revenue of approximately $500 million, representing a year-over-year growth of nearly four times. In the same financial report, institutions were calculating profit margins while the CEO was articulating the AI vision—this disconnect is the starting point for understanding Kuaishou's Q1 2026 performance.

## **01** **The Quarter When Profits Halved**

Let’s look at the headline figures first: Total revenue for Q1 2026 was RMB 33.72 billion, a year-over-year increase of 3.4%, slightly beating market expectations of around RMB 33.4 billion by approximately 0.9%. It was a lukewarm, slight beat.

However, the profit side was far from calm. Adjusted net profit was RMB 3.37 billion, down 26.3% year-over-year; GAAP net profit was RMB 2.91 billion, down 27% year-over-year, translating to basic earnings per share of RMB 0.67, a shrinkage of nearly 30% compared to RMB 0.92 a year ago. The adjusted net profit margin—profit retained from every RMB 100 of revenue after excluding one-time items like share-based compensation—dropped to 10.0%. This figure had peaked at 16% in Q2 2025, effectively halving within a year.

Viewed more broadly, this was not an anomalous fluctuation in a single quarter but a continuation of a trend. Since Q3 2025, Kuaishou's revenue growth rate has entered a continuous deceleration channel: Q3 2025 saw a 14.2% year-over-year growth, Q4 2025 grew by 11.9%, and by Q1 2026, it fell to 3.4%, hitting a two-year low. The structural contraction in live streaming revenue—a 13.5% year-over-year decline in Q1, marking multiple consecutive quarters of double-digit declines—and the slowdown in advertising growth are gradually narrowing Kuaishou's revenue elasticity space.

This is also the historical background leading Kuaishou to its current crossroads: At its listing in 2021, its market capitalization peaked at over HK$1 trillion, followed by a deep adjustment due to tighter regulations, intensified competition, and profitability pressures. From 2023 to 2025, it gradually turned losses into profits by improving advertising commercialization efficiency, raising its net profit margin from zero to a high of 16% over three years. The heavy investment in AI starting in the second half of 2025 is now exchanging that accumulated profit margin for a bet on the next growth curve.

User-side data was one of the few stable elements in this financial report. Monthly Active Users (MAU) reached 771.7 million, an 8.4% year-over-year increase, setting a new historical record; Daily Active Users (DAU) stood at 412.7 million, up 1.2% year-over-year, with peak figures during the Spring Festival also hitting all-time highs. In an environment where content platforms are generally competing for existing users, Kuaishou’s ability to steadily add tens of millions of monthly active users indicates that its content supply and algorithmic distribution foundation remains solid. However, the ratio of DAU to MAU dropped from about 57% in the same period last year to 53.5%, meaning that newly acquired users have lower engagement frequency than the existing core user base. While the user scale is growing, the depth of usage among incremental users is relatively shallow, a structural change that requires continuous monitoring.

## **02 AI** **Engine Ignition**

Now, let’s discuss why the market did not turn completely pessimistic after the four major institutions lowered their target prices—because one number stood in the way: Kling AI’s Q1 annualized revenue of approximately $500 million, a fourfold year-over-year increase.

Kling is Kuaishou’s AI video generation large model launched in mid-2024, initially positioned against Sora and Runway. At the time, there was considerable skepticism about whether it could truly succeed in commercialization—after all, Kuaishou is essentially a short-video advertising company, lacking the DNA for To-B AI services. However, the results of Q1 2026 proved these doubts premature.

Breaking down this $500 million ARR: Revenue sources are driven by both C-end (creator subscriptions and pay-per-use) and B-end (API calls, enterprise customization). During the conference call, management disclosed that marketing spend on AI-generated anime content increased by over 100 times year-over-year, indicating that advertisers have begun using AI content generated by Kling for commercial campaigns, forming a complete link from content generation to advertising monetization. Meanwhile, Kuaishou newly launched MyFlicker, an AI tool for workplace scenarios, attempting to open a new B-end commercial track on the tooling front.

For reference, in the global AI video generation commercialization sector, Runway’s externally estimated ARR is around the $70 million level. Among publicly trackable competitors, Kling has established a generational lead. Driven by Kling, Kuaishou’s “Other Services” segment generated RMB 5.58 billion in Q1 revenue, a 15.9% year-over-year increase, making it the only one of Kuaishou’s three revenue lines with accelerating growth.

However, the $500 million ARR is an annualized figure, while Kuaishou’s actual quarterly revenue from this segment was only about RMB 650 million. The proportion of AI business in Kuaishou’s total revenue remains below 3%. The Kling story is real, but it will take several more quarters of continuous validation to truly change the overall landscape of Kuaishou’s financial model.

## **03** **Did Advertising Accelerate?**

Advertising has been the core narrative pillar supporting Kuaishou’s valuation reconstruction over the past three years. Q1 2026 revealed a crack in this pillar—but before worrying, we need to separate seasonal and structural impacts.

Online marketing revenue was RMB 19.64 billion, a 9.3% year-over-year increase. This figure was lower than the market’s general expectation of 12% to 15% and far below the 20.1% growth in Q1 2025. On the surface, this was a clear miss. But looking deeper, the seasonal low-season effect of Q1 advertising was doubly amplified this quarter: First, the systematic budget-cutting cycle by brand clients after the Spring Festival, where January and February are typically the weakest windows for ad spending throughout the year; second, the base effect—Q1 2025’s 20% growth itself was a relatively high base, making further growth significantly more difficult.

Underlying structural indicators, however, sent different signals. Brand GMV increased by 25% year-over-year, and advertiser spend participating in the “Chengfeng Plan”—Kuaishou’s deep cooperation project for brand clients—grew by 42% year-over-year. These two sets of numbers imply that the pool for brand advertising is expanding, although Q1 bills were seasonally discounted. Kuaishou’s self-developed UAX automated intelligent placement tool is also continuously lowering the threshold for small and medium-sized brands to enter Kuaishou’s advertising ecosystem, providing a sustained positive pull for internal loop advertising.

Live streaming revenue was RMB 8.49 billion, down 13.5% year-over-year. This marks the fifth consecutive quarter of double-digit declines. It is no longer a surprise but part of an industry trend—the waning culture of tipping streamers, with user willingness to pay shifting towards e-commerce consumption. Kuaishou’s strategy is to actively guide streamers to direct traffic towards e-commerce GMV rather than trying to defend tipping revenue. The bleeding from live streaming continues, but its decline rate is within analysts’ expectations, producing no new negative deviations.

## **04** **The Most Noteworthy Number**

In the entire financial report, more worthy of separate analysis than the halving of profits is the gross margin.

Q1 2026 gross margin was 51.2%, a year-over-year decrease of 3.4 percentage points—Q1 2025 was 54.6%, marking a six-quarter low. Many analysts glossed over this figure in their review reports, but the logic behind it reflects the true impact of Kuaishou’s heavy AI investment on its financial model.

Let’s clarify the costs: Revenue grew by 3.4% year-over-year, but cost of revenue grew by 10.0% year-over-year. The growth rate of costs was nearly three times that of revenue. The scissors difference between the two mainly stems from AI infrastructure—procurement and depreciation of GPU clusters, bandwidth and computing power consumption for AI training and inference. These entered the gross margin ledger as direct service costs, rather than just remaining in the capital expenditure line item.

This is the key perspective for understanding Kuaishou’s current financial status: The outside world often focuses on the absolute figure of Kuaishou’s Q1 capital expenditure of RMB 12.1 billion, easily overlooking that AI investment has quietly permeated every cent of gross margin. For every RMB 100 of revenue, nearly RMB 49 goes towards paying costs, which is over RMB 3 more than a year ago.

The full-year capital expenditure guidance of RMB 26 billion remains unchanged. Approximately RMB 12.1 billion was executed in Q1, accounting for 46.5% of the annual total. Management promised that the second half would be significantly lower than the first half. This is the core premise of the entire valuation logic—if capital expenditure in the second half truly decreases, depreciation pressure will ease, and gross margin is expected to rebound to 53% or higher in the second half; if capital expenditure in the second half does not shrink, exchanging profits for an AI future becomes a ticket with no maturity date.

## **05** **How the Market Judged It**

After the financial report release, the focus of analyst consensus discussions quietly shifted from how much room remains for Kuaishou’s advertising growth to when Kling AI’s monetization density can support a higher valuation center. This is a migration of the narrative framework, not just a review of the financial report.

Looking at specific institutional judgments: Morgan Stanley adjusted its target price from HK$73 to HK$55, maintaining a Neutral rating, with the core basis being that the speed and magnitude of gross margin decline exceeded model predictions, leading to a systematic downward revision of full-year 2026 profit forecasts. HSBC lowered its target from HK$89 to HK$65, listing the market’s underestimation of Kling AI’s return on investment cycle as a major risk point, believing that live streaming contraction combined with advertising slowdown means there is insufficient short-term performance elasticity to support a premium valuation. Citigroup reduced its target from HK$95 to HK$72, maintaining a cautious stance, with the key question being how much net profit each dollar of Kling ARR can ultimately convert into—this monetization density is currently opaque. Futu maintained the most optimistic stance, with a rating target price of HK$82, characterizing Kling’s ARR fourfold year-over-year growth as a better-than-expected structural breakthrough, believing that Kuaishou is exchanging short-term profits for long-term AI platform premiums.

Futu’s HK$82 versus Morgan Stanley’s HK$55 represents a HK$27 difference, reflecting different answers to the same question: Is Kuaishou’s RMB 26 billion capital expenditure a time-bound construction cost, or a commitment with no specified maturity date? Overall, among the 31 covering analysts, the majority maintained Buy or Neutral ratings, but the mean center of analyst target prices shifted down from approximately HK$74 before the report to the HK$65–72 range.

Notably, this systemic downward adjustment of target prices is a collective correction of institutions’ full-year 2026 earnings forecasts, rather than a fundamental questioning of Kuaishou’s business model itself. Most institutions lowered their forecasts for short-term profit contributions, but generally hold an optimistic view of profit elasticity after 2027, when AI capital expenditures contract. This explains why, despite significant target price cuts, ratings hardly changed—institutions’ characterization of Kuaishou is switching from an advertising media company to a combination of AI infrastructure and a content platform, and the valuation framework required for this switch needs more quarters of data to finally take shape.

## **Editor's Conclusion**

Kuaishou’s Q1 2026 bill can be summarized in one sentence: Exchanging profits for time. The halving of profits is the visible cost, Kling AI’s ARR fourfold year-over-year growth is the expected signal of return, and the 51.2% gross margin is the underestimated hidden cost in this transaction. The question is not whether this account is reasonable, but when it will be settled.

In the next two quarters, three specific things are worth watching: First, the capital expenditure figures for the second half—management’s promise of a significant reduction needs actual numbers to fulfill, with quarterly capital expenditure being the most direct leading indicator for gross margin trends; Second, whether Kling’s Q2 ARR can break through $700 million—the CEO gave directional hints during the conference call, and if this figure appears, it will transform AI monetization from a single-quarter peak into an acceleration track, fundamentally changing the market’s pricing logic for Kuaishou’s AI story; Third, whether Q2 advertising growth can climb back above 20%—whether the momentum accumulated from the Chengfeng Plan, UAX tools, and brand GMV can truly reflect on the bills during the Q2 peak season will determine whether the advertising slowdown is a seasonal disturbance or a trend inflection point.

Halved profits are not Kuaishou’s endpoint, but it is not a bond that can be renewed indefinitely. The timeline is the only line in this story that has not yet been clearly written.

Data Source: Kuaishou Technology 2026 First Quarter Performance Announcement (HKEX, 2026-05-27); Kuaishou Q1 2026 Conference Call Transcript; FMP Historical Financial Data; Various Institutional Research Reports. This article does not constitute investment advice.

────────────────────────────────────

_Data Source: Kuaishou Technology_ _2026_ _Q1_ _Performance Announcement (HKEX)_ _|_ _This article does not constitute investment advice_

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