Kingsoft (KC) Q3 2025: WPS365 Revenue Jumps 72% as AI and Enterprise Adoption Accelerate
Kingsoft’s Q3 saw a decisive pivot to AI-powered office software and enterprise solutions, with WPS365 surging 72% and localization projects up 51%. The games business remains under pressure, but management is doubling down on content updates and international expansion. Investors should watch for sustained AI monetization and the competitive push against Microsoft in global markets.
Summary
- AI-Driven Office Growth: WPS365 and localization projects led office segment gains, offsetting gaming weakness.
- Gaming Revenue Slide: Online games declined sharply as legacy titles faded and new releases remain early-stage.
- Global Ambitions: Kingsoft is intensifying international expansion, targeting both enterprise and mobile users to challenge incumbents.
Performance Analysis
Kingsoft posted a 17% year-on-year revenue decline to RMB 2.019 billion, but sequential growth of 5% signals stabilization after a challenging year. The office software and services segment, now contributing 63% of revenue, was the clear bright spot, fueled by robust WPS software demand, a 72% surge in WPS365 (enterprise SaaS, subscription-based productivity suite), and a 51% jump in localization projects for government and state-owned clients. The WPS individual business also grew steadily, buoyed by a rising paid user base and successful AI feature rollouts.
In contrast, the online games and other business dropped 47% year-on-year and 6% sequentially, reflecting the fading contribution of older high-margin titles and the slow ramp of new releases. Cost structure was pressured by higher R&D (up 4% YoY, 5% QoQ), driven by AI investment, and a sharp 55% increase in selling and distribution costs tied to new game launches. Gross margin fell four points YoY to 80%, as mix shifted away from legacy gaming. Net profit margin dropped to 11%, highlighting the drag from gaming and elevated operating investment.
- Office Segment Outperformance: WPS365 and localization projects delivered high double-digit growth, offsetting gaming softness.
- Gaming Drag on Profitability: Legacy game decline and launch costs compressed group margins and net income.
- R&D and Marketing Spend Spike: AI and new game launches drove a step-up in expenses, with R&D reaching a record 36% of revenue.
Kingsoft’s cash position remains strong (RMB 2.6 billion), supporting continued investment in AI and internationalization. The company’s ability to scale SaaS and AI-driven office solutions is now the core earnings driver.
Executive Commentary
"Kingsoft Officeworks will stay committed to its whole strategy of AI collaboration and internationalization, meeting the scenario needs from individual users to enterprises through its core product portfolio. The online games business will focus on developing high-quality content and expanding global publishing, enhancing the long-term vitality of its classic franchises while we are driving the growth and sustainable development of new general."
Zhou Tao, Executive Director and CEO
"The remarkable increase of WPS software business was primarily driven by the robust orders of localization projects. The rapid growth of WPS 365 business was mainly due to our continuous improvement in collaboration and AI products, as well as expansion of our customer base among private and local state-owned enterprises."
Li Yi, Acting CFO
Strategic Positioning
1. AI as Core Differentiator
AI is the centerpiece of Kingsoft’s office software road map. The rollout of WPS AI 3.0 and integration across both individual and enterprise products has driven a near doubling of active AI users since last year. Management emphasized that AI is not just a feature add, but a platform shift, underpinning both user growth and premium conversion. The company is accelerating R&D (now 36% of revenue) to deepen AI capabilities, betting that this will sustain its lead in China and build competitive separation internationally.
2. Enterprise SaaS Expansion
WPS365’s 72% revenue growth reflects strong traction among private and state-owned enterprises, supported by localization requirements and AI-powered collaboration. Kingsoft positions WPS365 as a modular, flexible platform that integrates with enterprise workflows, differentiating it from Microsoft’s monolithic suite. The company sees a large addressable market as Chinese enterprises accelerate digital transformation and as global customers seek alternatives to US incumbents.
3. Internationalization and Microsoft Competition
Global expansion is a strategic imperative. Kingsoft is leveraging its mobile-first legacy and AI differentiation to attract users in emerging markets, where its lightweight apps and flexible deployment are advantages. Management claims a ten-year head start in mobile office and highlights strong user growth outside China. The company is targeting geographies with established mobile user bases and favorable diplomatic ties to China, aiming to build scale before Microsoft can respond locally.
4. Gaming: Content and IP Focus, But Structural Headwinds
The games division faces structural decline in legacy titles, with management shifting to frequent content updates, new gameplay, and international launches. While new games like Metabricks and Goose Goose Duck are in early ramp, revenue contribution remains modest. The company is prioritizing long-term community engagement and operational improvements to stabilize the user base, but near-term financial contribution is limited.
5. Localization and Policy Tailwinds
Localization projects (government and public sector software deployments) grew 51%, driven by policy mandates for domestic software. Kingsoft’s deepening integration in government digitalization efforts provides a stable, policy-backed growth lever, though management cautions that this segment is sensitive to regulatory shifts and project delivery capability.
Key Considerations
This quarter marks a strategic inflection as Kingsoft pivots decisively to AI-powered office solutions and international SaaS expansion, while legacy games recede. The sustainability of high office growth and the success of global expansion are now the critical watchpoints for investors.
Key Considerations:
- AI Monetization Trajectory: Sustained growth depends on converting AI feature adoption into recurring revenue, especially among enterprise clients.
- Enterprise Delivery Risk: Expansion in WPS365 and localization projects hinges on Kingsoft’s ability to scale delivery and support for large enterprise and government clients.
- Gaming Segment Volatility: Ongoing decline in legacy games and uncertain ramp of new titles will continue to weigh on group profitability.
- International Competition: Success in overseas markets will require differentiated product, local partnerships, and resilience against entrenched incumbents like Microsoft.
Risks
Kingsoft faces several material risks: continued gaming revenue decline could further pressure margins, while execution missteps in enterprise SaaS delivery or international expansion could stall momentum. Regulatory and policy shifts may impact localization project funding. Aggressive R&D and marketing spend, if not matched by monetization, could erode profitability. Competition with Microsoft, especially outside China, remains formidable.
Forward Outlook
For Q4, Kingsoft signaled:
- Continued strong growth in office software, led by WPS365 and localization projects.
- Gaming segment to remain under pressure, with new titles still ramping and legacy titles declining.
For full-year 2025, management maintained a positive outlook for office and SaaS growth:
- High double-digit growth in office SaaS and localization expected to persist, barring major policy shifts.
Management highlighted factors supporting guidance:
- AI adoption rates and enterprise customer wins in office segment.
- Delivery capability and policy tailwinds for localization projects.
Takeaways
Kingsoft’s transformation into an AI-first, SaaS-driven office software provider is accelerating, with gaming now a secondary contributor. The company’s strategic bets on enterprise, localization, and global expansion are materializing in segment results, but execution risk remains high.
- Office Segment Drives Growth: WPS365 and localization projects are now the company’s primary growth engines, offsetting gaming headwinds.
- Strategic Shift to AI and SaaS: R&D intensity and AI integration underpin Kingsoft’s bid to differentiate and scale globally.
- Internationalization Is Next Major Test: Investors should watch for traction in overseas markets and sustained AI monetization as the next phase unfolds.
Conclusion
Kingsoft’s Q3 2025 results highlight a clear pivot to AI-powered office software and international SaaS, with WPS365 and localization projects delivering robust growth. Gaming remains a drag, but office momentum and R&D investment position the company for long-term transformation—if execution keeps pace.
Industry Read-Through
Kingsoft’s results reinforce two sector-wide themes: first, AI integration is rapidly becoming a baseline expectation in productivity software, with monetization potential tied to enterprise adoption and workflow integration. Second, localization and sovereign tech policies are driving demand for domestic SaaS in China, offering a template for other emerging markets. The gaming sector’s legacy-to-live-service transition is proving challenging, with content updates and international launches needed just to stabilize revenue. Competitors in both software and gaming should note the rising cost of AI-driven R&D and the strategic imperative to localize and globalize simultaneously.