KINGSOFT (03888) shares plummeted 5.03% in Friday's trading session, as investors reacted to a series of negative factors affecting the company's outlook. The sharp decline came after Morgan Stanley downgraded the stock and concerns arose about the performance of the company's new game.

Morgan Stanley, in a recent research report, lowered KINGSOFT's rating from "overweight" to "equal weight," citing the underperformance of the company's major new game "Unlimit" in terms of initial downloads. The investment bank also highlighted ongoing challenges in AI monetization within KINGSOFT's office software segment. As a result, Morgan Stanley cut KINGSOFT's gaming revenue forecasts for 2025-2027 by 11% to 13% and reduced earnings per share projections by 25% to 30%. The target price was consequently lowered from HK$45 to HK$41.

Adding to the negative sentiment, CICC provided a cautious outlook on KINGSOFT's performance. The firm expects KINGSOFT's second-quarter revenue to reach 2.29 billion yuan, representing a 7.5% year-over-year decline. While CICC anticipates recovery growth in the office business, it noted that the gaming segment faces pressure due to a high comparison base. The firm revised its full-year gaming revenue growth forecast from 5% down to flat growth, based on cautious assumptions regarding new game performance and the sustainability of existing games. The underwhelming performance of KINGSOFT's new releases, including "Swordsman Love Zero" and "Unlimit," further contributed to the pessimistic outlook.