Streaming service Kuaishou shifts focus to e-commercemoney-glitz | 25 Jan 2021
Chinese start-up Kuaishou Technology is poised to be the first short-video company listed in Hong Kong. Seeking to raise up to US$6 billion (HK$46.8 billion), it could be the biggest initial public offering in the city for nearly two years.
Kuaishou is expected to open retail book tomorrow and debut on February 5.
The Chinese second-largest short video company is reportedly valued at more than US$60 billion through the float. That is 65 percent higher than Twitter's market cap and more than 10 times that of Weibo, the two leading micro-blog platforms around the world. But, it has far fallen behind its arch-rival ByteDance, whose valuation has risen to US$180 billion ahead of a planned Hong Kong listing of its domestic unit Douyin.
With a weighted voting rights schedule, Tencent (0700)-backed Kuaishou is ready to attract billions of dollars in orders. Small brokers in Hong Kong have reserved at least HK$170 billion quota for mom-and-pop investors. About 10 cornerstone investors have agreed to buy US$2.5 billion new shares, including BlackRock, Fidelity and Invesco, as well as sovereign wealth funds like Abu Dhabi Investment Authority, GIC, Temasek, and Canada Pension Plan Investment Board, Bloomberg reported.
The Beijing-based start-up said it intends to use the net proceeds to improve content offerings and user experience, sharpen up marketing and promotional activities, expand services, strengthen research and development, as well as for potential acquisitions and investment.
Kuaishou was founded in 2011 by Su Hua, former programmer at Google and Baidu, and Cheng Yixiao, who was a software engineer at HP. They started the business with GIF Kuaishou, a tool for sharing animated images, before transforming into a short video platform in end-2012.
A decade since its launch, Kuaishou has grown into a social media giant with 305 million daily active users, who spend more than 86 minutes a day on average in the app as of September 30, 2020. That compared with Douyin, Tiktok's sister app in China, which claimed its daily active users reached 600 million as of August last year.
With long-term effort to build an online social community, Kuaishou has gained a large user base in rural towns and lower-tier cities, with the majority of content creators sharing their daily life from cooking to parenting. In contrast, Douyin has an edge in algorithms that helps it better match users with content that may interest them, it is more popular with young people living in urban spaces, carrying more videos about e-sports, music, dancing, movie stars and beauty makeup, etc.
Kuaishou also operates short video apps Kwai and Zynn in overseas markets, but they are far less popular than TikTok, which is sanctioned by the US government.
Thanks to the rise of short video and live streaming in mainland China, Kuaishou's revenue jumped by 1.43 times to 20.3 billion yuan (HK$24.33 billion) in 2018, and further surged by 92.7 percent to 39.12 billion yuan in 2019. In the nine months last year, its revenue grew by 49.17 percent to 40.68 billion yuan.
However, the company has yet to turn a profit. Its net loss widened to 97.37 billion yuan for the first nine months last year from 1.62 billion yuan a year ago, as it spent nearly 20 billion yuan in sales and marketing to expand urban audiences and improve brand awareness.
Morgan Stanley, one of the IPO sponsors, expects Kuaishou will not make a profit before 2022, while revenue is projected to grow to 168 billion yuan in 2023, driven by an enlarged user base.
Unlike Douyin, whose key revenue driver is online advertising, more than 62 percent of Kuaishou's revenue came from live streaming. In the app, fans can tip streamers unlimited through "virtual gifts", and Kuaishou could share up to 60 percent of gross billings.
The company is the largest live streaming platform by gross billings from virtual gifting and average live streaming around the world, according to its prospectus citing a report by iResearch. In the first three quarters last year, about 59.9 million users tipped streamers every month, each of them brought a revenue of 47 yuan to the company.
But regulatory pressure is likely to squeeze the most profitable business. In November last year, China's National Radio and Television Administration released new guidelines to cap the rewards ceilings, without providing details. Minors and unverified accounts are banned from tipping.
To diversify its business, Kuaishou has been shifting its focus to online advertising and e-commerce areas.
Online marketing accounted for 32.8 percent of total revenue for the nine months ended last September, from 4.7 percent in 2017. In addition, Kuaishou is targeting e-commerce as the next key revenue stream. It signed a strategic partnership with Chinese second-largest online retailer JD.com (9618) last year to compensate its lack of supply chain.
Kuaishou said the total gross merchandise value through its platform soared to 204.1 billion yuan from January to September last year from 96.6 million yuan in 2018. But earnings from the sector only contributed 5 percent of total revenue.
In November, Kuaishou acquired mainland online payment firm Easylink for a payment license, the latest move to enter into the fintech industry. Before that, Kuaishou's users have to pay through third-party tools - Tencent's WeChat Pay, Alibaba's (9988) Alipay, and Apple Pay - for products sold by live-streamers. The license not only helps Kuaishou save payment processing fees and avoid sharing transaction records to competitors, but paves the way for launching consumer loan products similar to Ant Group's Huabei and Jiebei.