Guotou Securities International has issued a research report stating that KUAISHOU-W's (01024) first-quarter performance was in line with expectations. Revenue from its AI unit, Kling, surged 91% quarter-over-quarter, with its annual recurring run-rate (ARR) surpassing $500 million as of March. The firm maintains that Kling AI's state-of-the-art (SOTA) model capabilities remain the current strategic priority. The bank has made minor adjustments to its full-year revenue and profit forecasts, projecting total revenue growth of 3.7% year-over-year, adjusted net profit of RMB 17.3 billion, and a profit margin of 11.7%. It reaffirms its "Buy" rating.

The key points from Guotou Securities International are as follows:

**Kling AI's ARR Experiences Rapid Growth** In Q1, Kling AI revenue reached RMB 650 million, marking a 333% increase year-over-year and a 91% increase quarter-over-quarter, accounting for 11.6% of other service revenues. The ARR approached $500 million in March, up from $300 million in January, benefiting from the strong performance following the launch of Kling AI 3.0. The company has maintained its 2026 CAPEX guidance at RMB 26 billion, representing an approximate 74% increase year-over-year (RMB 11.1 billion). The first quarter involved training and inference computing power reserves, which are expected to support subsequent model iterations. Maintaining the SOTA capability of the Kling AI model remains the current business focus, with iteration directions including long-text control, camera movement capabilities, image quality, and native unification. The firm anticipates Kling AI's Q2 revenue to grow nearly 30% quarter-over-quarter and has raised its 2026 Kling revenue forecast to $500 million (RMB 3.3 billion). The company had previously announced that its board is evaluating a restructuring plan for Kling AI-related assets, which may involve external financing.

**Financial Forecasts** The bank projects Q2 total revenue to increase by 1.1% year-over-year. Within this, online marketing services are expected to grow 6.5% year-over-year, with non-ecommerce marketing service revenue growing faster than ecommerce scenarios, driven by areas such as web dramas, lifestyle services, and AI applications. Other service revenue is forecasted to grow 10% year-over-year, with Kling being the primary source of incremental growth, while ecommerce commission income is expected to remain stable year-over-year. For the full year 2026, the bank has slightly adjusted its revenue and profit forecasts, projecting total revenue growth of 3.7% year-over-year, adjusted net profit of RMB 17.3 billion, and a profit margin of 11.7%.

**Risks:** Rapid iteration in large language model technology may render current leading advantages unsustainable. Lapses in platform content ecosystem governance and intense competition for user time in broad entertainment are concerns. Ecommerce market share competition is fierce and is also subject to macroeconomic consumption expectations.