Themis Qi
China's online fitness app Keep has applied for an initial public offering in Hong Kong again but though its profitability has grown, it faces more intense competition.
Backed by China's tech giant Tencent (0700) and SoftBank's Vision Fund, Keep first filed to list in February but let the application lapse.
Founded in 2014, Keep was the largest online fitness platform in mainland China in terms of monthly active users and the number of workout sessions finished by users in 2021, according to China Insights Industry Consultancy.
The app operator offers online fitness content, smart fitness devices and fitness products including gear, apparel and food.
Additionally, it also runs fitness centers called Keepland since 2018.
Keep's revenue increased to 1.62 billion yuan (HK$1.81 billion) in 2021 from 663.12 million yuan in 2019, and the turnover grew 37.6 percent yearly to 417.27 million yuan for the first three months of this year.
The major revenue contributors were self-branded products, membership and online paid content, and advertising and others, accounting for 51 percent, 38.6 percent and 10.4 percent of total sales respectively in the first quarter of 2022.
Since its first IPO application, Keep now has higher profitability as its net loss from January to March narrowed 52.9 percent to 154.85 million yuan from a year before.
The change resulted from sharply reduced expenses in sales and marketing which accounted for 35.3 percent of revenue during the first quarter, compared to 81.9 percent over the same period in 2021.
Keep's net loss once exploded 6.8 times to 826.53 million yuan in 2021 after spending 956.22 million on sales and marketing, though the revenue only grew 45.5 percent.
Now, revenues from three major segments have been more balanced. Though its self-branded products still account for nearly half of total revenue, the growth for the first quarter amounted to 17 percent only, while the income from membership and online paid content expanded 75.6 percent yearly to 161.34 million yuan. However, the gross profit margin of Keep's fitness equipment just passed 40 percent, lower than the industry level of 50 to 55 percent.
Keep also said the gross profit margin of its self-branded products declined to 15.1 percent last year from 20.8 percent in 2020.
Keep's smart devices and fitness products compete with alternatives produced by American tech giant Apple, China's smartphone maker Xiaomi (1810) and Canada's Lululemon, which is famous for its yoga clothing.
In terms of online content, its rivals including China's Tiktok-like Douyin and the video platform Bilibili (9626) seem to be more advantageous, as they earn more traffic from the user-generated content mode which allows key opinion leaders and users to upload their fitness videos freely.
Besides Keep, many influencers such as Pamela Reif from Germany share their workout plans also on Douyin and Bilibili (9626) whose active users reached 671 million and 175 million respectively this March, far higher than Keep's 37.68 million monthly average for the first half of 2022.
The fierce competition for online content might explain the slower user growth of Keep's app. During the first six months of 2022, Keep's average monthly users rose 9.6 percent, while the figure jumped 15.8 percent from 2020 to 2021.
Also, online fitness platforms now face challenges with the pandemic under control and people going back to the gym
A good example is New York-based Peloton Interactive, whose stock price has plunged below US$10 from a high of over US$160 in December 2020 and whose two founders left the exercise equipment maker after reporting a US$1.2 billion quarterly loss in August.
However, Keep now has 65 Keepland centers in Beijing as of June and plans to expand to Guangzhou and other cities.
Nonetheless, China's strict Covid controls pose a threat and in April 2020, its gym Keepland quit Shanghai after shutting down three avenues.
Goldman Sachs and China International Capital Corporation are the joint sponsors for the proposed offering.
