Kuaishou Has Dropped More Than 50% YTD – What’s Next?

Kuaishou’s share price tumbled more than 11% after the announcement of their first quarter earnings report. This has widened its year till date’s decline to more than 50% after reaching a peak in February of HK$418.

What You Need To Know

Kuaishou’s revenue climbed 37% to US $2.65 billion, however its sales and marketing expenses surged to 69% of the total revenue. Besides, its spending on R&D has tripled after the aggressive hiring to grow its advanced technologies like artificial intelligence. As a result, this has widened its adjusted earnings per share loss to -RMB 1.73 as compared to the analyst expectations of -RMB 1.47.

Despite the underperformed first quarter results, Kuaishou has achieved two key milestones, showing strong fundamentals in its business.

Hitting its 520 million monthly active users

In the first quarter of 2021, Kuaishou’s monthly active users expanded to 520 million, up from the 495 million users a year earlier. Besides, it also achieved encouraging results in overseas markets through its Kwai and SnackVideo apps, hitting a 100 million monthly active users. The good news is it is further increased to over 150 million in April 2021.

The management began seeing that there is real potential for its business model and ecosystem in the overseas markets. South America and Southeast Asia will be the key regions in its international expansion.

Content, content, content!

Kuaishou’s other services reported an increase in revenue of 589.1% to RMB1.2 billion as compared with the same period in 2020. This was primarily driven by its e-commerce services. In the last quarter, the company continued to enhance its e-commerce capabilities, solidifying its unique position as a content based e-commerce platform.

Kuaishou continues to encourage its merchants to produce more premium content, which could help to attract targeted users to spend more time in their private domains where the traffic can be retained for the long-term. Together with high quality products, the firm believes that this can help to drive improvements in conversion rates and increase in transactions. In fact, its private domains’ contributions to the total e-commerce GMV have exceeded the contributions from public domains last quarter.

Is it a buy?

I like Kuaishou as the short video giant platform continues to build its platform capabilities and focuses on contents to build long term active users. However, there is a question of cost management, the management seems to be very aggressive in investing in technologies and AI, which may not generate returns fast enough in the next few quarters.

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