KUAISHOU Technology, the competitor to ByteDance’s Douyin, reported a slower expansion in its e-commerce business in the second quarter, despite the company’s net profit soaring.

Its shares (HK: 1024) dropped further to HK$39.85 (US$5.11) apiece Thursday after closing 9.7% down at HK$40.1 the previous day.

Gross merchandise volume (GMV) at Kuaishou’s e-commerce business rose 15% to 305.3 billion yuan (US$42.77 billion) in the three months ended June 30 from a year ago, compared with a 28.2% jump in the year-earlier period, as per the Beijing-based firm’s trading report.

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-term 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.

Kuaishou said Tuesday that its net profit more than doubled and adjusted net profit surged 74% as revenue rose 12% to 30.975 billion yuan.

Analysts said the GMV weakness was expected, given the weak consumer sentiment observed during the June 18 shopping campaign.

Weaker GMV growth might continue in the second half of the year given persistent macro headwinds, Citi analysts said in a research note. Citi now projects Kuaishou’s second-half GMV growth at 14% and lowered its target price on the stock to HK$67 from HK$69.

A bright spot for Kuaishou was its gross margin, which rose to a record 55.3% as it continued to shift its revenue mix to higher-margin businesses.

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

“Looking ahead, we remain committed to leveraging our technological expertise to explore how AI can further empower our existing businesses and create new business opportunities,” Cheng said. “Our large video generation model, Kling AI, has gained widespread acceptance among both domestic and global users.”(SD-Agencies)