Source | Bohu Finance (bohuFN)

The AI industry has seen another significant financing milestone, this time involving Kling.

Recently, Kuaishou announced that its subsidiary, Kling AI, operating under Beijing Kling, has successfully completed a new round of capital increase. The initial funding amount is approximately 13.8 billion yuan, with a total capital increase limit of 20.447 billion yuan, roughly equivalent to $3 billion. This investment corresponds to an additional 16.67% of Kling's total equity post-expansion.

Following this financing round, Kling's post-investment valuation has soared to approximately $18 billion. Although slightly lower than the previously rumored $20 billion, when compared to Kuaishou's current market valuation, Kling represents over 70% of Kuaishou's total market capitalization. This highlights a stark contrast: Kuaishou, with 740 million monthly active users and annual revenue exceeding 100 billion yuan from its core short-video business, is valued at only $7.4 billion in the capital markets.

The significant valuation gap between Kuaishou's main business and its AI venture underscores the current challenges faced by the company.

According to Kuaishou's Q1 2026 financial report, its traditional business sectors, including advertising, live streaming, and e-commerce, are showing signs of fatigue. Notably, revenue from the live streaming business, a familiar segment for users, saw a sharp decline of 13.5% year-on-year, with its contribution to total revenue continuing to diminish. The AI business, while holding growth potential, is not yet a major revenue generator but remains a significant cost driver. AI investments continued to weigh on profitability in Q1, resulting in a substantial 26.3% year-on-year decrease in adjusted net profit to 3.374 billion yuan.

As AI competition intensifies, major players are solidifying their positions and focusing on core businesses, making it increasingly difficult for Kuaishou to compete in the secondary market. On the evening of July 6, Kuaishou revealed that its shareholder, Tencent Holdings, had sold a portion of its shares in the company. Following the transaction, Tencent's stake in Kuaishou will decrease from 15.68% to 9.37%, potentially cashing out up to HK$12.5 billion. Consequently, on July 7, Kuaishou's stock price plummeted nearly 10% during intraday trading.

Kling's pursuit of independent commercialization represents a strategic lifeline for Kuaishou.

01 A Dual Benefit Strategy

Describing Kuaishou's main business in a nutshell, sluggish growth seems apt.

The saturation of mobile internet growth is a well-discussed topic. In Q1 this year, Kuaishou's monthly and daily active users continued to rise, with DAU reaching 412.7 million, up about 1.2% year-on-year, and MAU reaching 771.7 million, a net increase of approximately 60 million year-on-year. Despite the expanding user base, the propensity to engage with the app has declined. In Q1, Kuaishou's DAU/MAU ratio slipped from 55.0% in Q4 last year to 53.5%.

Narrating the tale of 'loyal users' is becoming increasingly challenging, and Kuaishou's business is encountering greater obstacles.

The live streaming business, impacted by regulatory changes, is no longer the growth engine it once was.

While it maintained a 14.4% year-on-year growth rate in Q1 2025, negative growth began in Q4. By Q1 this year, the live streaming business further contracted, with revenue plummeting by 13.5% year-on-year. The advertising business has now become the primary revenue driver, generating 19.643 billion yuan in Q1, up 9.3% year-on-year, although this represents a slowdown from the 12.5% growth rate recorded last year.

The only exception is other businesses, including e-commerce and Kling AI, which generated 5.58 billion yuan in revenue in Q1, up 15.9% year-on-year. However, e-commerce is clearly not the growth catalyst. From a macro perspective, overall e-commerce growth is decelerating. According to National Bureau of Statistics data, online retail sales of goods and services from January to April reached 6.5308 trillion yuan, up 6.6% year-on-year.

From Kuaishou's perspective, the growth rate of its e-commerce business slipped from 78% in 2021 to 15% in 2025. Market analysis suggests that Kuaishou's e-commerce GMV growth rate may fall to the 5%-10% range in 2026.

Thus, the most significant growth comes from Kling.

In March 2025, Kling's annualized revenue run rate (ARR) exceeded $100 million; by the end of last year, this figure had reached $240 million. In Q1, Kling's revenue reached 650 million yuan, with an ARR nearing $500 million, representing over 300% year-on-year growth.

However, while the growth is impressive, the expenditures are substantial.

Kling's aggressive global expansion is entirely financed by Kuaishou. In the mobile internet era, the marginal cost of delivering internet services was low, but in the AI era, serving each DAU incurs significant costs.

In Q1, Kuaishou's selling costs increased by 11.1% year-on-year, far outpacing the 3.4% revenue growth. Bandwidth and server costs, as well as asset depreciation, rose sharply. Research and development expenses also remained high, increasing by 9.8% year-on-year. Capital expenditures for 2026 are expected to reach 26 billion yuan, an increase of 11 billion yuan from 2025.

This is a hallmark of the current AI competition: participants must either secure substantial financing or possess their own cash cows. Compared to the profit levels of Alibaba, ByteDance, and Tencent, which reach hundreds of billions of yuan, Kuaishou's adjusted net profit of 20.6 billion yuan last year appears insufficient.

Pursuing independent commercialization is a strategy that offers dual benefits.

On the one hand, although external investors have been brought in, Kuaishou has only relinquished 16.67% of its external equity, securing real cash on its books and significantly alleviating its investment pressure.

On the other hand, Kling's independent commercialization allows it to break free from its original valuation framework. It is no longer just a business within Kuaishou but has obtained a reasonable valuation as an AI company. Kling is a rare high-quality asset in the current market, and this round of financing has set a record for the largest financing in the global video large model sector.

At this juncture, the market no longer focuses solely on how Kling empowers Kuaishou but on its potential as a large model enterprise.

CICC points out that this round of financing will bring about a triple revaluation: first, independent pricing of AI assets will lift the group's valuation ceiling; second, it will alleviate Kuaishou's capital expenditure pressure and optimize resource allocation; finally, it will introduce diverse strategic investors, forming a stronger ecological synergy in dimensions such as technology, computing power, and cultural and entertainment content.

02 An Ongoing Battle

The capital increase agreement for Kling includes clear listing conditions: if Kling fails to complete a qualified listing by October 2031, the external investors in this round have the right to exercise a repurchase option, requiring the company to redeem the corresponding equity at the original investment principal plus an 8% annual simple interest rate.

This means Kling needs to realize its value within five years.

From a model capability perspective, Kling is already a high-quality investable asset in the current market. In June 2024, Kuaishou's AI video generation model, "Kling," made its debut. After more than 20 iterations, Kling was upgraded to version 2.6 in December 2025, achieving the innovative breakthrough of generating complete audio and video in a single session.

According to Sensor Tower data, as of January 2, Kuaishou's Kling AI app was the top-grossing graphics and design app on iPhones in South Korea and Russia and ranked in the top ten in markets such as the United States, United Kingdom, Japan, and Australia.

Kuaishou has spared no effort in investing in Kling. In April last year, Kuaishou established the Kling AI Business Unit, upgrading it to a first-tier business department. Since March last year, Kling has released more than eight major version updates. Gai Kun, Kuaishou's senior vice president, described Kling's iteration speed as "running for dear life."

Video generation is also one of the few businesses in the large model sector, aside from coding, that can generate revenue. The surge in ARR fully demonstrates Kling's potential.

However, the challenge is that for all model players, to continue generating revenue, they must maintain their model's state-of-the-art (SOTA) status. Only leading models can capture market share. This is true for general-purpose large models and even more so for vertical sectors like AI video.

On the one hand, model competition is intensifying. Although Kling has maintained a leading position for some time, the release of Seedance2.0 quickly made it the SOTA for video generation models. ByteDance, which achieved a latecomer advantage in the short-video sector, has done so again in the AI video space. Meanwhile, new players continue to enter the market, such as Alibaba's HappyHorse.

On the other hand, Seedance2.0's leading position has enabled ByteDance to rapidly achieve commercialization. According to 36Kr, in April 2026, Volcano Engine fully opened sales of the Seedance2.0 API to customers, with the condition that they must sign an annual contract for at least 10 million yuan in Seedance usage to gain access to the "full-power" version of 2.0. Now, ByteDance's Seedance2.0 ranks second globally in market share, behind only Google's Veo, which holds nearly half of the global market.

As long as one remains in this industry, there is no escaping the situation of an ongoing battle. According to reports, Kling's new version will be released mid-year, but Seedance2.5 and Veo's new versions will also be updated during this period. This increasingly tests Kling's research and development and commercialization pace.

Referenced Sources:

1. Smart Emergence: Unveiling ByteDance's Seedance: The World's Second-Best AI Business | Deep Dive

2. Bohu Finance: With an ARR of $240 Million, Can Kling Take Kuaishou to New Heights?

3. Bohu Finance: Kuaishou's Q1 Report: The "Urgency" of Spinning Off Kling

4. Huxiu: Are BAT Allying to Block ByteDance?

The cover image and accompanying illustrations are owned by their respective copyright holders. If the copyright owners believe that their works are unsuitable for public browsing or should not be used without compensation, please contact us promptly, and our platform will make immediate corrections.