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Good day, fellow investors. I'm subscribed to Barris' research platform, as we can call it. And there is a lot of discussion, accounting, capex, AI, Palantir, Nvidia, going short. But, he recently shared how there is an opportunity in Hong Kong stocks. He shared three stocks that he owns, Kuaishou, Meituan, and JD.
Let's start this analysis with Kuaishou and also discuss my versus Barris' investing perspective. So, Kuaishou situation, of course, disregarded by the market, forgotten a little bit after the post-pandemic boom for Chinese stocks. Now, it is down, but the business keeps on growing. Similar situation for Meituan.
We'll discuss that in a specific video. We have already discussed JD.com, but might also update over time. Now, very important here to understand the context. I am a value investor, a margin of safety investor. I've done my 15% per year since 2018 and more than that since 2002. There are two great buys on my research platform that I just updated on.
So, if you want to check my research platform, now it's a great time as I am updating on all the covered stocks. But, exactly from that compounding long-term value investing perspective, I want to discuss Kuaishou technology. And what they are, they are a Chinese short-term video form app. A lot of Chinese ladies when I went there, but okay, that's China.
However, they are the world's second-largest short video platform. They are driven by AI. They have 416 million average daily users. And the craziness there is that those daily users spend on average 144 minutes daily on that. 144 minutes, 400 million people, and we cannot compete with China. Who's crazy here?
They have also clean AI to generate those short-term videos, and they are growing revenues, improving efficiency, cost efficiency that leads to net profit jumps of 26.3% Clean AI is growing since launching. It's already at 12 million users in the environment sharing globally. And this is also one risk that we have to discuss for AI.
AI Mag 7 huge capex investment and everything, but there are also these smaller Chinese AI that are cheaper and already market applicable. I think run rate revenues for this Clean AI from Kuaishou is already 250 million as of this December, and it's likely to continue to grow. And that is on much less capex, just a few billion.
They can produce that AI capacity tools that will simply compete also with the Mag 7. It is a global marketplace, and that's something very important to consider when it comes to investing. Nevertheless, this is more friendship connection-based rather than TikTok. You select I don't didn't read that much how it works, but it leads to easier e-commerce conversion.
Kuaishou has a 30% short-term video market share in China compared to the TikTok's sister 50%. However, what's very important is to see Kuaishou was at around 10% of the apps 5 years ago and now it is at 30% going going to 50% now and I think they are the losers perhaps in the game. However, this is also crazy.
You might lose market share but the market has exploded especially for short-term videos which is insane how much time people spend on these short-term videos. Better watch my And there is no YouTube in China. I should open my channel there. Who knows? Apart from joking, we already mentioned 460 million users, huge time spent there, interactions, monthly average users, almost the whole of China, huge gross merchandise value moved, and good revenue growth, 14% over the last year.
Adjusted net profit is higher based on higher profit margins. So 14 going 16% much higher from the earlier growth rate. That improvement leads to higher profits. You see here. You see the growth in profits and if that continues 26% to 5 billion over the quarter, that's 20 billion renminbi, that's 20 something billion Hong Kong dollars that will later compare to the stock price.
There is AI. They are investing in AI AI strategy. Of course, this is also showing the application of Chinese AI, how it immediately improves growth in marketing services, shopping mall search order volume and things like that. So they can calculate the benefit of AI that are rarely seen around. NBA is using, Amazon is using them.
So, very interesting number of brands embracing Kling AI. Plus, this video platforms, this and that, expected to grow significantly. I have found various estimations. This is somewhere in the mid of the estimations, growing at 30% over the next 5, 7, 8 years. If that continues on Kling AI, that's growing faster, then you know that there is a huge addressable market for just the AI tool that they have.
And that's one component of the investment thesis here. Gross profits going higher as they are becoming more efficient also on the selling and marketing expenses, research and development pretty stable, administrative expenses managed to be lowered. So, these are good numbers showing an inflection point how the scalability finally reaches profits.
And 26% year-over-year profitability, if that continues, keep in mind you have a P ratio of 15 that we are discussing here. That's already something. On top of everything, 106 billion in cash, that's 13.5 billion dollars. If we look at the analysts, most have it a buy, a strong buy, average price target 93.
We are now at 68. That's significant upside on the situation. And here is my investment conclusion. I wrote this for my research platform. I'll write all the situations there. Perhaps look a little bit more on Hong Kong, but you can read it also there. So, 400 million Chinese there, significantly growing revenues 10% more profitability on the scale, thus net income is growing even faster than that.
Some rewards to shareholders, stock-based compensation eats it up, but there is a dividend, which is always a good sign, even if not that significant. I think 0.67 yield. However, the key play here is the e-commerce cheapness and the Clink AI upside potential. And here I have set the distribution of possible returns from this investment.
So, we have the bull AI thesis. I have put a 15% probability for that because we don't know which one of the AI video tools will survive. There is Google, there is Sora, there is another one. So, there will likely be a market for all as they specialize. However, if they keep on growing, I've looked at some research from Goldman also.
This is a significant value play in this story that's priced practically at zero. If then the multiple expands on 2 billion of revenue as they are growing fast, they have global customers. 2 billion revenue times five times revenue, that's already 20 billion on top of the cash, on top of the e-commerce profitable value.
So, that's a business in a business. Perhaps it will be spun out. So, very interesting situation. Then, just the e-commerce section, I have said I'm conservative 60% chance. They are still growing net profits at 20%, 26% last 12 months. 26% if it's 20% growth there. But even if the valuation stays at 15, perhaps the valuation should expand to 20, 20-something just on that growth.
And that's already a target price of 90, 100 just on everything staying as is and enjoying that underlying profitability growth. That is now perhaps oversold, perhaps everyone is scared about AI investments, but the e-commerce and the time spent is there. So, perhaps revaluation somewhere down the road, but the growth already would justify a price of around 90.
The bear case, this is my margin of safety investment. So, at around 40, 50, so we are then looking at the cash, looking at the situation, perhaps there is a situation in China, geopolitics, you never know what can happen. We'll discuss Alibaba when the earnings come out, so you'll see that long time story of mine, how it has developed.
So, that will be very, very interesting. So, we have distribution potential returns. It is likely it goes to 90 easily over the next year, two years. I have done this for the end of 2027. So, on that basis, it is a good buy. And that is exactly what we do, risk and reward, and then you have to see how it fits you.
Personally, I need it to be here a good buy, so I need it to be at 40 so that I am already winning in a bear case margin of safety scenario. So, that's why I do the analysis here, I'm happy to share with you. And if and when perhaps some of these companies that are interesting fit my buy, it might enter my portfolio.
Because there is also risk. This is Kuaishou, it might lose its market share because China is extreme on competition. And the key is that I need to compound, I need to compound with the margin of safety, I need to make sure that I compound. I would not like to buy it now and then see it go down to 50, 60.
I have to double down if they start losing market share or something like that because something else is coming. And that's the risk. That's why Warren Buffett didn't invest in technologies, things like that. Perhaps we will see at 40, but it's also explains the difference between me and Michael Burry.
Burry, great investor, we know him from The Big Short. He likes more to take these asymmetric bets based on price. If you look at this price, 68 will go to 90. So, there is a win, there is uh undervaluation, there is a possible market move. He also said that when Deep Seek comes out in the next couple of weeks, the new version might push AI Chinese stocks higher.
So, that's also way to gain on Now it's relatively cheap. It looks like a good return, good asymmetric risk and reward situation. So, you just have to see how it fits you. I am much more conservative, much more to the value. At the right price, this might be something for me. So, if you like this attitude, check my research platform. Keep in mind, two great situations at the moment.
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