Behind the profit of KEEP(03650): The potential of sports and AI has just begun to be released.

On July 21, KEEP (03650) announced on the Hong Kong Stock Exchange a profit forecast for the first half of 2025. For the first half of 2025, under non-International Financial Reporting Standards measurement, the adjusted net profit for the first half of the year is expected to be approximately 10 million yuan, with a significant improvement in profitability. The announcement stated that the improvement in performance is primarily due to optimizing business structure and revenue quality, increasing gross profit margin, leveraging AI technology, steadily improving operational efficiency and organizational effectiveness, and further reducing operating expenses. I. AI investment leads to short-term profit pressure, with half-year performance being a critical turning point This profit forecast is crucial for Keep, which is in the midst of an AI transformation. Since its listing, Keep has maintained a stable pace, gradually reducing losses through various effective means. However, this stable rhythm was disrupted by a sudden transformation. In the 2024 annual report disclosed in March this year, Keep's adjusted net loss was still 469 million yuan, an increase of 59% year-on-year. The main reason for the loss was "to consolidate long-term competitiveness, continuous investment in new strategic business and technological innovation plans, resulting in increased related expenses." Looking back at Keep's financial reports over the years, a clear turning point can be observed. In the first half of 2024, Keep's financial indicators showed a gradual reduction in losses, but in the second half of the year, losses suddenly expanded. The timing of the losses is basically in line with Keep's entry into the AI application market. Data shows that in 2024, Keep's R&D expenses decreased by 2.4% year-on-year to 439 million yuan (benefiting from optimization of personnel costs and cloud service costs), but AI-specific investments significantly increased. CEO Wang Ning mentioned during the annual performance conference call that the development of motion genre model Kinetic.ai and AI coach "KaKa" resulted in additional costs of 5 to 8 million yuan. In addition, Keep launched multiple AI applications overseas in 2024, such as FitPulse, Gogogola, and CalCut, which further increased sales and management expenses through promotion and hardware innovation, squeezing profit margins. This situation of expanding losses has received different feedback from the outside world. Bulls believe that between a stable landing and a resolute reinvestment in the AI market, Keep chose the latter, releasing a one-time negative news to free up long-term value space. However, the fact that the company has not been profitable for several years still makes some people skeptical about its AI investment and future commercialization progress. Since announcing its AI strategy at the beginning of the year, Keep's AI technology investment has been progressing rapidly in the first half of 2025. In March, Keep officially launched Kinetic.ai, the first exclusive model in the field of motion health, and simultaneously launched the first universal AI coach - KaKa, based on this model. In May, a new version of the AI coach was launched, adding multimodal capabilities to provide users with intelligent exercise plan generation, intelligent training guidance, exercise data recording, dietary recording and assessment. Previously, Keep had set itself the goal of returning to profit in 2025 in its performance outlook. The half-year profit this time became an important milestone in verifying whether the "All in AI" strategy could be successful. On the one hand, exceeding the expected completion of the profit target, on the other hand, to a certain extent also implies the initial verification of the paradigm shift from the Internet to AI Agent under the AI strategy and the running-in of AI to reshape its business model. II. AI application reshapes revenue structure, unleashing commercial potential Keep's current business is divided into three main segments: self-owned brand sports products, online members and paid content, advertising, and others. The latest profit forecast indicates that its strategic focus remains on AI intelligence on the APP side and the profit growth of self-owned brand sports products. As a core application of AI technology in the "online members and paid content" segment, the AI coach is highly anticipated. It is widely recognized in the industry that with the accelerating wave of AGI era technology and application, AI applications will completely change the consumption process, save user time and energy, and provide more new business value. However, when focusing on specific tracks and enterprises, how to embrace generative AI technology quickly and timely is the key topic in the transformation process. The field of sports technology where Keep is located can be considered a precision application in the vertical service industry and can also be regarded as an online new consumption platform, both of which are generally favored by institutions. Guosen's report on "Guosen-Social Service-Industry Quick Review: Social Service Industry Review-Domestic AI Large Model Gains Breakthrough Progress, Multiple Application Landing Scenarios Expected in Social Service Sector" pointed out that the open-source model is accessible to vertical domain enterprises. More recognition compares Keep with AI applications like Meitu and Duolingo. These views believe that the "educational" application scenarios of Duolingo and Keep are very similar. While Duolingo aims to help students achieve better learning outcomes, Keep aims to provide more precise exercise plans to achieve better "training effects" for users. This also means that the successful path of Duolingo could be completely replicated in Keep. Data shows that in the first quarter of 2025, Duolingo's total revenue reached 230.7 million US dollars, an increase of 38% year-on-year; net profit was 35.1 million US dollars, a significant increase of 30% compared to the same period last year; daily active users (DAU) reached 46.6 million, an increase of 49% year-on-year; monthly active users (MAU) exceeded 130.2 million, an increase of 33% year-on-year. Behind these numbers is the reshaping of the education paradigm by AI technology. It was disclosed that in the first quarter, Duolingo used generative AI technology to add 148 new language courses for different native speakers, covering niche demands such as Portuguese native speakers learning Korean and Japanese native speakers learning German. This number is close to the total course development volume of the company in the past 12 years, with a tenfold increase in production efficiency. Looking at Keep, the logic of AI enhancing its productivity is similar to this path. On the one hand, AI will rapidly and significantly increase the efficiency of Keep's content production, allowing the platform to quickly add more sports categories that were previously limited due to factors such as labor costs, such as golf, tennis, etc., can now be covered with the help of AI. Consequently, Keep can quickly attract more users of different categories of courses and expand its user base. On the other hand, most of Keep's members are currently focused on Keep course content, with an ARPU value of around 20 yuan. However, with the arrival of AI Coach, the interaction, communication, exchange with users, providing emotional value, and design level of the plan have transformed from a simple video to providing a complete sports fitness service. This means that Keep is transitioning from a model centered on selling content to a model centered on service delivery, with the potential for an increase in ARPU value by over 10 times. It is not an exaggeration to say that "All in AI" for Keep is not only of strategic significance but also of real survival value. At the same time, Keep plans to launch three levels of universal coaches, IP personalized coaches, and professional coaches in the future, formulate tiered pricing strategies, and tap into user value. The profit forecast for Keep indicates that it will continue to focus on AI intelligence in sports scenarios and tools to enhance user experience, promote user activity, and improve retention performance. In the "self-owned brand sports products" segment, Keep continues to expand from training, yoga, and other advantageous categories to new areas such as swimming, climbing, badminton, etc. The first smartwatch product launched in 2024, Keep Watch Pilot 1, has recently added an "AI running private coach" function, which provides customized training plans to runners of different levels based on personal running data and professional algorithm analysis. III. Advantages and challenges coexist: racing against the clock with capital markets Currently, generative artificial intelligence technology is reshaping the competitive landscape of the Internet industry and the valuation logic of capital markets. As mentioned above, companies such as Meitu, Duolingo, etc. have won recognition from the capital market and demonstrated their determination to transform towards AI through successful commercial applications. In the field of sports and fitness, Keep's AI layout still leads the way, and the feasibility of "All in AI" has been preliminarily verified. The "Weight Management Year" three-year action plan is expected to drive the demand for national fitness, providing new growth opportunities for Keep in transition. The capital market has shown optimism towards Keep's AI strategy. After announcing "All in AI" in February 2025, on February 7th, at the close of trading on the Hong Kong Stock Exchange, Keep closed at 7.14 Hong Kong dollars per share, with the stock price rising by more than 40% since the beginning of the year, making it one of the companies with the highest increase among global AI-related stocks within a week; the release of the new version of the AI coach in May also triggered a 5% increase in the stock price in a single day. The market is hopeful for AI technology, but it must be acknowledged that whether Keep can fulfill its promise of a balanced profit and loss in 2025 still depends on the balance between technology implementation and business rhythm. On the one hand, Keep's accumulated data of 400 million users' sports data over the past decade serves as a technical moat. The platform has accumulated over 1.4 billion sports records, covering multiple dimensions such as running routes, physiological indicators, equipment usage, etc., possessing the advantages of scale and comprehensiveness. The Kinetic.ai model, relying on exclusive data resources, has more precise professional capabilities in scenarios such as motion correction and plan generation. However, if the commercialization progress of AI applications falls short of expectations, it may limit the scale of future R&D investment and the speed of technological iteration. Additionally, whether the AI coach can elevate the ARPU value, and fundamentally solve issues such as user retention difficulty and sluggish hardware sales in online fitness, also requires further validation from the market. Keep is attempting to break through the ceiling of a tool-based APP with its AI transformation, building a sports and health service ecosystem. Despite previous successful cases like Meitu, Keep still needs to quickly demonstrate that technology can tangible results - the market's patience is now racing against the pace of improving user experience.