The E-Commerce Tug-of-War: Kuaishou's Struggles Amidst AI Hype

August 22, 2024, 9:36 am
Goldman Sachs
Goldman Sachs
Location: United States, New York
Employees: 1-10
Kuaishou Technology is in the spotlight, but not for the right reasons. The Chinese video app, often seen as a rival to Douyin, has recently faced a significant downturn in its stock price. The reason? A slowdown in its e-commerce growth. Despite a remarkable surge in net profit, the market reacted negatively. It’s a classic case of expectations versus reality.

In the second quarter of 2024, Kuaishou reported a 15% increase in gross merchandise volume (GMV), reaching CNY305.3 billion (USD42.1 billion). However, this growth pales in comparison to the 28.2% jump from the previous year. Investors are not just looking at numbers; they are looking for momentum. When that momentum falters, panic ensues. Kuaishou’s shares plummeted by nearly 10% in a single day, a stark reminder of how quickly fortunes can change in the tech world.

The e-commerce landscape in China is a battlefield. Kuaishou is not alone in this fight. Giants like Alibaba, JD.Com, and PDD Holdings are formidable opponents. Kuaishou has invested heavily in live streaming e-commerce, trying to carve out its niche. But the competition is fierce, and consumer demand is fickle. The co-founder and CEO, Cheng Yixiao, pointed to a short-term deceleration in demand and increased competition as key factors behind the slowdown.

Brokerages reacted swiftly. Citigroup and Goldman Sachs both maintained a ‘buy’ rating but lowered their price targets. This is a cautious approach, acknowledging the potential while recognizing the challenges ahead. The weak macroeconomic environment and intensifying competition cast a long shadow over Kuaishou’s future.

Despite the e-commerce hiccup, Kuaishou’s net profit soared by 167% to CNY4 billion (USD561.1 million). Revenue rose by 11.6% to CNY31 billion (USD4.4 billion). The company’s advertising income jumped by 22%, showcasing its strength in online marketing. Yet, the livestreaming segment saw a decline, a troubling sign for a platform that has heavily invested in this area.

The rise in monthly active paying users for Kuaishou’s e-commerce business is a silver lining. It grew by 14.1% to 131 million, but this growth is slower than the previous quarter. The penetration rate stands at 18.9%, indicating room for improvement. Kuaishou must find ways to engage and retain these users, or risk losing them to competitors.

Amidst these challenges, Kuaishou is looking to the future. The company is committed to leveraging artificial intelligence (AI) to enhance its offerings. Cheng emphasized the importance of AI in driving efficiency and stability. Kuaishou has made strides in AI research, developing tools like Kling AI and KwaiYii. These innovations are being integrated into various business scenarios, showing promise for future growth.

However, the AI landscape is not without its own challenges. The hype surrounding generative AI has reached a fever pitch, but reality is starting to set in. Many projects have failed to deliver on their promises. A recent study revealed that 80% of AI projects do not succeed. This is a sobering statistic for any company betting on AI as a silver bullet.

The generative AI boom has created a gold rush mentality, with companies scrambling to invest in the latest technologies. Nvidia, the chipmaker, has emerged as a major beneficiary, seeing its valuation skyrocket. But for Kuaishou, the focus must remain on practical applications of AI that can enhance user experience and drive revenue.

As Kuaishou navigates this turbulent landscape, it must strike a balance between innovation and practicality. The company’s future hinges on its ability to adapt to changing market conditions and consumer preferences. The e-commerce sector is evolving, and Kuaishou must evolve with it.

In conclusion, Kuaishou’s recent struggles highlight the volatility of the tech industry. A single quarter can shift perceptions and impact stock prices dramatically. The company’s strong net profit and user growth are overshadowed by concerns over e-commerce performance. As Kuaishou looks to AI for solutions, it must remain grounded in reality. The road ahead is fraught with challenges, but with the right strategies, Kuaishou can emerge stronger. The e-commerce tug-of-war is far from over, and Kuaishou must be ready to fight.