Why Investors Are Turning a Cold Shoulder? A Single Monetization Model May Be Dragging Down Kuaishou's Growth Potential, and Koling AI Has Become the "Village's Hope".

@TechNewKnowledge Original

After Double 11, major tech companies are ready to present their results. Although the third quarter is traditionally a slow season, this year's lull stands out amidst the reshuffling of e-commerce players and the peaking of short video traffic.

From a business perspective, the relatively conservative Kuaishou seems to have become a target for capital sniping; after releasing its earnings, the secondary market plummeted, losing about 15% over two trading days. Purely from the data, Kuaishou is still growing. In terms of revenue, Kuaishou achieved RMB 31.1 billion in the third quarter, a year-on-year increase of 11.4%; in terms of profit, Kuaishou's net profit was RMB 3.9 billion, a year-on-year increase of 24.4%.

However, compared to previous quarters, the overall growth rate has slowed, plunging Kuaishou into growth anxiety.

What's more anxiety-inducing is that in terms of performance data, it seems difficult to find any "expectations gap" in Kuaishou. Steady e-commerce growth, already high daily and monthly active user numbers, and 132.2 minutes of usage time all point to a state of mediocrity after high growth.

Whether it's the Laotie economy, the sinking market, or the banned-then-unbanned Xinba, these all seem to reflect a new kind of "cycle".

Especially with the rapid rise of video accounts and the influx of many gold seekers, such a "cycle" has not stopped people from forgetting traditional scripts quickly.

However, the status of AI and Koling seems to have become Kuaishou's "village's hope". Kuaishou CEO Cheng Yixiao also revealed in a conference call that Koling AI currently serves over 5 million users, with monthly commercial revenue exceeding tens of millions, and significant growth is expected next year.

Due to its potential in content directions such as short dramas, advertisements, and games, the text-to-video track has a clear commercialization prospect. As the first major player to bet on this direction, Kuaishou has a first-mover advantage, and the mediocrity of its performance also forces this traditional giant to make breakthroughs in this direction.

What's more noteworthy about Koling is its imaginative space in technology and prospects. The industry's runner-up has presented advanced technology at present. Koling's future and commercialization capabilities, to some extent, determine Kuaishou's height.

However, the real picture may not be as rosy as expected. The collective acceleration of pursuers seems to be gradually dragging Koling from being a standout into a fiercely competitive red ocean market. Against this backdrop, whether Koling can continuously maintain technological innovation, user growth, and commercialization leadership has become a touchstone for testing its true colors.

From a corporate perspective, Kuaishou is far from the moment to "rest on its laurels." However, as short videos enter a growth bottleneck, how long can Kuaishou sustain itself with mere defense? Not to mention the predatory video account with the power to reshape the industry landscape. From this perspective, Koling seems to have reached a stage where success is a must, and how its future unfolds is worth dissecting.

01

User Growth, Unable to Match Market Doubts

Among Chinese internet companies, Kuaishou's valuation has always faced a bit of embarrassment.

From a competitive landscape perspective, Kuaishou's daily and monthly active users have reached 408 million and 714 million, respectively, with a user engagement time of 132.2 minutes. Even Douyin, the industry leader, doesn't lead by much based on the data.

According to the "2024 Social & KOL Marketing Trends Report," Douyin's daily active users are 600 million. And according to the "China Internet Audiovisual Development Research Report (2024)," the average daily usage time for short videos is 151 minutes.

In addition, Kuaishou has also done well in commercialization and going global. In the third quarter of this year, Kuaishou's online marketing services, live streaming business, and other services including e-commerce contributed 56.6%, 30.0%, and 13.4% of total revenue, respectively. The company claims that its core business revenue, mainly consisting of online marketing services and other services (including e-commerce), has achieved a significant growth of nearly 20% year-on-year compared to the same period last year, with a continuously increasing market share.

As the most popular social media platform today, Kuaishou, as the absolute leader in the industry and the only listed giant, has not enjoyed its due valuation. From Kuaishou's market capitalization on the Hong Kong Stock Exchange, the total market value has fallen below RMB 200 billion. And from a stock price perspective, Kuaishou has been at a low level for a long time. Over three years and nine months, Kuaishou's share price has fallen by nearly 90%, with a market value evaporation of about HKD 1.5 trillion.

Why has the seemingly "high-quality" second-place short video player fallen out of favor with investors? From the current perspective, Kuaishou's failure to demonstrate matching growth capabilities seems to be a key factor.

Historically, Kuaishou achieved its first profit in 2023, but after an initial period of rapid growth, just one year later, Kuaishou quickly narrowed its revenue and profits to a relatively stable range, namely, a quarterly revenue scale of around RMB 30 billion and a profit of around RMB 5 billion (based on data from three consecutive quarters, Kuaishou's net profit has not yet exceeded RMB 5 billion).

In fact, Kuaishou's profit growth is significantly related to its cost control effectiveness.

Compared to the first three quarters of 2021, when Kuaishou's sales, administrative, and research and development expenses combined accounted for up to 83.61% of revenue for the period; by the same period in 2023, the company had successfully turned the tide to achieve profitability, with these three expenses accounting for a significantly reduced proportion of revenue at 47.09%; further, in the first three quarters of this year, this proportion continued to optimize to 44.35%.

Why has Kuaishou, with a large user base and having just turned profitable, quickly encountered a commercialization ceiling?

The reason may lie in its relatively single monetization model. Whether it's e-commerce, advertising, or live streaming, Kuaishou's path to profit recovery has largely been a replication of the mature paths of leading players. And when the growth rate of leading players begins to slow, the pie that can be shared correspondingly begins to shrink.

The most obvious comparison is with industry leader Douyin. In 2024, the sales growth rate of Douyin's e-commerce has fallen from over 60% at the beginning of the year to less than 20% in September. In terms of advertising, in the first three quarters, ByteDance's quarterly advertising growth rate in China fell from around 40% to within 17%. More critically, Douyin seems to have no way to change the current situation.

With the head in such a position, the second-place Kuaishou seems unable to escape a similar fate, especially when another giant begins waging a so-called "infinite war" with video accounts, making Kuaishou's situation even more uncertain.

From a broader perspective, even if the future industry competitive landscape remains a tripartite battle among Douyin, Kuaishou, and video accounts, it seems increasingly difficult for Kuaishou to break through from its traditional businesses, namely e-commerce, advertising, and live streaming. A more realistic scenario may be long-term stability within a fixed revenue range. However, if such a situation arises, it indicates that Kuaishou's desire to break through will require an entirely new narrative.

From the current perspective, AI and Koling are clearly the protagonists of this new narrative.

02

Encountering Pursuers, Koling's Hidden Worries Begin to Emerge

Koling's debut was undoubtedly mysterious and stunning.

When it was launched in June, it was only four months after the release of sora. What's more remarkable is that from the outset, Koling was a fully formed product, with its internal user base quickly surpassing 100,000. To some extent, compared to the untestable sora, Koling appeared more advanced, a point recognized by both Chinese and foreign users. In terms of actual effects, Koling's practicality is commendable, and it ranks among the top in evaluation agencies.

On the other hand, what's even more exaggerated is that before Koling's announcement, most AIGC practitioners knew nothing about it. As mentioned earlier, in the traditional internet sector, people don't have a deep impression of Kuaishou's technology. Koling's explosion has shown the outside world another possibility for Kuaishou.

Immediately afterward, Koling's development entered the fast lane. According to data, the number of Koling AI users has exceeded 5 million, with a cumulative 51 million videos and over 150 million images generated. By introducing a membership payment system and opening API services, leveraging various modules such as video generation, image generation, and virtual try-ons, Koling has successfully converted these into real money. As of November 2024, Koling AI's monthly revenue has exceeded RMB 10 million.

However, despite the favorable situation, there is significant disagreement within the industry and among investors about Koling.

In terms of technological scarcity, Koling's most advanced feature is its ability to generate 2-minute videos at 30fps with a resolution of up to 1080p and support for multiple aspect ratios. Its dominance lies in resolution and maximum generation time. Of course, due to its earlier release, Koling is also relatively advanced in product maturity and user experience.

However, pursuers are accelerating their pace. After Koling's release, the text-to-video track developed rapidly, with ByteDance launching Jimeng AI and Minimax launching Hailuo AI. Subsequently, in September, the Volcano Engine AI Innovation Tour Exhibition was held in Shenzhen, unveiling video models including PixelDance (image-to-video) and Seaweed (text-to-video). Moreover, more major technological backgrounds are accelerating entrepreneurship in this sector, such as Liu Wei, the former technical leader of Hunyuan.

From an effectiveness perspective, although Koling retains its advantages, other competitors have also found their breakthrough points. In a research report released by China Merchants Securities, based on a comparison by overseas YouTube bloggers of Hailuo AI, Runway, and Kuaishou's Koling in China, Hailuo AI is significantly ahead in motion generation, especially in the fluidity and realism of human movements, outperforming competitors like Runway and Luma AI.

The red ocean has become the current state of the text-to-video field, and from the evaluation results, it seems that each product has its strengths. Entering the product stage is not good news for Kuaishou. Historically, Kuaishou's product launches have led Douyin by a long time, but it was later surpassed by Douyin, and even its product ecosystem and commercialization capabilities are inferior. This also indirectly confirms that when the real product war, rather than a technology war, begins, Koling's prospects will enter a state of great uncertainty.

Moreover, although the imagination of the text-to-image track is gradually being realized, and its potential is huge, it seems still far from the so-called "iPhone moment." Whether Koling will once again fall into the trap of being early but late to market has become a concern for investors.

03 From Short Dramas to AI Advertising, the Market Is Still Waiting and Seeing

If there's any comfort zone for Koling in the future, short dramas are obviously one of them.

With a maximum duration of 2 minutes, short dramas can complete almost the entire chain from creation to launch to monetization. Now Kuaishou has attracted the largest micro-short drama consumer group on the entire internet.

The head of Kuaishou's Xingmang short drama business previously revealed that as of July this year, the daily active users of Kuaishou's short dramas reached 300 million, a year-on-year increase of 11%. Among them, the number of heavy users who watch more than 10 episodes of short dramas daily reached 146 million, a year-on-year increase of 55.3%.

Meanwhile, Kuaishou's marketing system built around short dramas is also accelerating, and short dramas seem to have a promising future.

During the earnings call, in response to the question of the sustainability of short drama business growth, Kuaishou's founder, chairman, and CEO Cheng Yixiao said that according to third-party data projections, the short drama market size is expected to exceed RMB 100 billion by 2027. With the gradual enrichment of the short drama supply ecosystem, the existing over 500 million short drama audience still has a foundation for further commercialization. Kuaishou not only has a rich short drama supply ecosystem but also a user base of over 300 million short drama users, and it is expected that both IAP and IAA model marketing consumption will maintain rapid growth.

However, stepping out of its comfort zone, Koling's competitiveness seems questionable. From public information, it appears that Koling has made some inroads in advertising and education, such as producing Coca-Cola advertisements. But after the initial praise, public opinion began to shift.

Image source/Koling AI video account

After netizens carefully watched the advertisements, they expressed their dissatisfaction: "AI creations lack narrative logic and are very hollow," "AI characters smile too falsely," "The uncanny valley effect." Of course, as a participant, Koling did not fully produce the advertisement, and as an advertisement product jointly processed by multiple models, Koling's role has not been specifically disclosed. But from the results, the current consumer aesthetics cannot yet be satisfied by AI advertisements.

At the same time, it can be observed that when viewers begin to scrutinize the content, their standards for AI-generated content products are not just a passing 60-point work but include more detailed demands. For example, the level of detail in the image, the vividness of scene characters, and the portrayal of details. Of course, from this, it can also be seen that in practice, the current Koling is far from being applicable, even in the short drama track where Kuaishou excels.

From the perspective of industry applications, it can be foreseen that Wensheng Video will face increasingly complex and sophisticated demands from creators. However, even for basic demand replacement, it seems that Keling still has issues.

In a report, a creator stated, "Getting accurate results is hit-or-miss, with typical utilization rates reaching 40%." The creator analyzed the reasons, "On one hand, Kuaishou lacks a sufficient basic corpus, and on the other hand, the prompts are not sufficiently descriptive."

In addition, a current issue faced by professional creators is that whether it's reviving old photos or anthropomorphizing animals, these are relatively simple operations with limited room for creativity. Their aspiration is to create more challenging and expressive feature films and commercials.

It is evident that when commercialization faces real user demands, Keling's upgrade speed still seems insufficient. Keling is undoubtedly exciting for AIGC, but from a practical perspective, whether it's the rapid pursuit within the industry or the company's urgent need for a second growth curve, Keling is not at a point where it can relax. More challenging is that no one seems to know what Keling's upper limit will be—whether it will remain a novelty-driven social currency or truly become a super product capable of disrupting the industry. At least for now, there is no definitive answer.

How much room for trial and error will the market give to Keling? Will there be other variables after Sora's official release? Everything remains uncertain.

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