Comprehensive Analysis of Kuaishou Technology’s Financial Performance
Date: Thursday, 21 November 2024
Broker: UOB Kay Hian
Introduction to Kuaishou Technology
Kuaishou Technology, a prominent content community and social platform, allows users to create, upload, and watch short videos on mobile devices globally. The company’s stock is listed under the ticker 1024 HK in the Communication Services sector.
Current Market Standing
The company’s share price stands at HK\$52.55 with a target price set at HK\$67.00, suggesting a potential upside of 26.7%. This reflects a slight reduction from the previous target price of HK\$70.00. Major shareholders include Tencent Holdings Ltd with 18.9%, Morningside Venture Capital Ltd with 15.7%, and China Asset Management Co Ltd holding 8.4%.
3Q24 Financial Performance
Kuaishou’s 3Q24 results met expectations, with revenue increasing by 11% year over year (yoy) to Rmb31 billion. The gross profit margin saw an improvement of 3 percentage points (ppt) yoy, reaching 54%. Non-IFRS profit for the quarter surged by 24% yoy to Rmb3.9 billion, aligning with market forecasts. However, management anticipates a more moderate revenue growth of 10% in 4Q24, with earnings estimated to grow by 8% yoy to Rmb4.6 billion-Rmb4.7 billion.
Detailed Revenue Breakdown
- Live Streaming: Revenue slightly declined by 4% yoy, impacted by increased governance in the live-streaming ecosystem.
- Online Marketing: Revenue grew by 20% yoy, supported by a rise in external effective cost per mile (eCPM) and a 7% increase in traffic volume.
- Other Services: Revenue increased by 18% yoy.
Future Outlook and Financial Guidance for 4Q24
For the upcoming quarter, Kuaishou’s management projects a revenue growth of 10% yoy, with gross margins expected to improve slightly to 54%. The sales and marketing expenses are forecasted to rise by 13% yoy, primarily due to increased user subsidies aimed at boosting e-commerce monetization. Adjusted net profit is expected to align with consensus estimates, with a net margin of 13%.
Key Financial Metrics and Projections
| Year | Net Turnover (Rmbm) | EBITDA (Rmbm) | Operating Profit (Rmbm) | Net Profit (Rmbm) | EPS (Fen) | PE (x) |
|---|---|---|---|---|---|---|
| 2022 | 94,183 | (6,072) | (12,558) | (13,689) | (135.2) | n.a. |
| 2023 | 113,470 | 13,869 | 7,350 | 7,318 | 252.0 | 19.4 |
| 2024F | 125,850 | 20,769 | 13,633 | 14,120 | 377.5 | 13.0 |
| 2025F | 140,415 | 27,208 | 19,950 | 20,154 | 517.0 | 9.5 |
| 2026F | 155,311 | 34,337 | 26,940 | 26,586 | 655.7 | 7.5 |
Stock Impact and User Growth
Kuaishou continues to show healthy user metrics, with daily active users (DAU) reaching 408 million, reflecting a 12 million quarter-over-quarter (qoq) increase and a 21 million year-over-year (yoy) rise. Monthly active users (MAU) also surged to 714 million, with the DAU/MAU ratio remaining stable at 57.1%. The number of monthly active merchants saw a significant 50% yoy increase, underlining the platform’s growing e-commerce capabilities.
Financial Risks and Considerations
Potential risks include weakening advertisement demand due to macroeconomic conditions, intensified competition from Douyin, regulatory restrictions on minor’s screen time, and expanding losses from new ventures. Despite these concerns, Kuaishou’s strategic initiatives and robust user engagement metrics position it well for future growth.
Valuation and Recommendations
UOB Kay Hian maintains a “BUY” recommendation for Kuaishou Technology, albeit with a revised target price of HK\$67.00. The valuation suggests a Price-to-Earnings (PE) ratio of 11.7x for 2025, aligning with industry peers, while the current trading PE stands at 9.2x for 2025, reflecting a 21% EPS compound annual growth rate (CAGR) over the next three years.
Potential Share Price Catalysts
Improved monetization rates across all service categories, reduced competition, supportive government policies to stimulate consumer spending, and regulatory easing on internet platforms could act as significant catalysts for share price appreciation.
