(Yicai) Aug. 21 -- Kuaishou Technology's shares plunged after the competitor to Douyin, TikTok's sister app in China, reported a slower expansion in its e-commerce business in the second quarter of the year and despite the company’s net profit soaring.

Kuaishou [HKG: 1024] closed 9.7 percent down at HKD40.10 (USD5.62) a share in Hong Kong today, after tumbling by as much as 12.2 percent at one point.

Gross merchandise volume at Kuaishou’s e-commerce business rose 15 percent to CNY305.3 billion (USD42.1 billion) in the three months ended June 30 from a year ago, compared with a 28.2 percent jump in the year-earlier period, the Beijing-based firm’s trading report showed yesterday.

Known mainly as a popular short-video platform, Kuaishou has been expanding its presence in e-commerce over recent years. Up against other major players in China’s e-commerce sector, such as Alibaba Group Holdings, JD.Com, and PDD Holdings, the company has developed its own e-commerce platform and heavily invested in live streaming e-commerce.

The slowdown in GMV resulted from a short-tern deceleration in consumer demand and stiffer competition in China’s e-commerce space, co-founder and Chief Executive Officer Cheng Yixiao said on an earnings conference call.

After the results came out, several brokerages cut their share price targets for Kuaishou. Citigroup kept a ‘buy’ rating on the stock, but lowered its target to HKD67 from HKD69, noting that the weak macroeconomy and intensifying competition will likely hinder income growth from e-commerce advertising and other services in the second half.

Goldman Sachs also maintained its ‘buy’ rating on Kuaishou, while dropping its price target to HKD67 from HKD70. UBS Group cut its target to HKD76.70 from HKD85, but stuck to a ‘buy' rating. The firm’s strong advertising and livestreaming results partially offset the weaker-than-expected e-commerce growth, it said.

Net Profit

Kuaishou’s net profit surged 167 percent to CNY4 billion (USD561.1 million) in the period on a 11.6 percent rise in revenue to CNY31 billion (USD4.4 billion). Income from online marketing services jumped 22 percent to CNY17.5 billion, but that from livestreaming fell 6.7 percent to CNY9.3 billion.

Gross margin topped 55 percent, adjusted net profit was CNY4.7 billion, and adjusted net margin was 15.1 percent, all record highs, Cheng pointed out.

The e-commerce business’ monthly active paying users rose 14.1 percent to 131 million in the second quarter, with a penetration rate of 18.9 percent, but that growth was slower than the 22.4 percent year-on-year gain in the first quarter.

AI Empowerment

“Looking ahead, we remain committed to leveraging our deep technological expertise to explore how AI can further empower our existing businesses and create new business opportunities, driving the company forward with efficiency and stability,” Cheng also noted.

“We have achieved industry-leading breakthroughs in AI research and development,” he said. “Our large video generation model, Kling AI, has gained widespread acceptance among both domestic and global users.”

Kuaishou's artificial intelligence suite, including the KwaiYii large language models, large visual generation tool Kling AI, and advanced text-to-image generator Kolors, has been integrated across various business scenarios, the company pointed out.

Nearly 20,000 merchants used Kuaishou's AI suite to optimize their operations on the platform, with daily spending on AI-generated materials by marketing clients peaking at CNY20 million (USD2.8 million) in the second quarter, it added.

Editor: Martin Kadiev