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Chinese short-video platform Kuaishou Technology [1024:HK] will debut at the Hong Kong Stock Exchange on February 5. The expected initial public offering (IPO) will raise as much as USD5bn and make Kuaishou the first major short-video platform to go public. From its prospectus, currently, Kuaishou’s shareholders include Tencent [0700:HK], Sequoia Capital, Baidu [BIDU:US], Temasek, Boyu Capital, and 5Y Capital (formerly known as Morningside Venture Capital). Among them, Tencent is the single largest shareholder with a 21.567% stake, and Chinese venture capital 5Y Capital is the first investor of Kuaishou, holding 16.657%. Kuaishou’s co-founders, Su Hua and Cheng Yixiao each owns a 12.65% and 10.02% stake. Baidu also has about 3.78% shares of Kuaishou.
Kuaishou starts from GIF-making tool and is featured for its livestreaming
In 2011, Cheng Yixiao self-developed the first program called GIF Kuaishou for people to make GIF-formatted images and share them on social medial platforms. With the development of smartphones and internet, GIF Kuaishou pivoted to seven-second video clips. Later, a former Google engineer, Su Hua, was recruited by the team, who built an algorithm to analyze user behavior and start push customized content to users. In 2016, Kuaishou introduced livestreaming, where hosts entertain viewers in real time and earn money by receiving virtual gifts from viewers. From the sales of virtual gifts, Kuaishou takes a 45% cut as its platform commissions.
(Source: Sinolink Securities)
Currently, Kuaishou recognizes three revenue segments: short video and livestreaming, online marketing services, and other services. Nowadays, more than 262m Chinese people open the Kuaishou app on an average of ten times every day. Its average daily active users (DAU) spend more than 85 minutes on the platform per day. By 1H20, the livestreaming business contributed to 68.5% of its total revenues, dropping from 95.3% in 2017, while its online marketing service accounted for 28.3%, up from 4.7% in 2017. Currently, livestreaming business contributes the largest part of revenue. However, this raises concerns from investors that the company’s incomes depend too much on its livestreaming service, which is basically contributed by a handful of celebrity influencers. For its next step in 2021, Kuaishou aims to achieve its financial target by transferring from the livestreaming-oriented business to an advertisement-oriented business, according to Sinolink Securities [600109:CH].
Kuaishou faces fierce competition in the Chinese short video industry
The year-on-year (YoY) increase of independent devices per month in the country’s short video industry has dropped from 312% in 2017 to 18.4% in 2019, implying a significant decline in user growth and the stiff competition in this sector. Kuaishou’s biggest rival ByteDance’s Douyin (known as TikTok outside of China) was launched in September 2016 and featured for its totally different algorithm from Kuaishou. According to Tiger Brokers [TIGR:US], Kuaishou is social engagement oriented, based on decentralized algorithms, while Douyin is media oriented, famous for its powerful centralized recommendation algorithms. From 2018, the monthly active users (MAU) of Douyin have exceeded Kuaishou. By December 2020, the average DAU of Kuaishou is 263m, while Douyin has nearly three times of the number at 600m. Also, Douyin generates three times the advertising revenue per user hour of Kuaishou.
(Source: Financial Times)
In addition to Douyin, new players are coming into the market. For instance, Tencent, the biggest shareholder of Kuaishou, promoted two of its short video apps. In addition, in January 2020, Tencent also launched a short video platform integrated with its chatting app WeChat, which has already obtained 280m users.
Further challenges stand out for the sustainability of Kuaishou’s business
Along with the boom of its business, there are lots of vulgar, violent, gory, pornographic, and harmful posts in the early stage of Kuaishou’s video business. In 2018, the Cyberspace Administration of China (CAC) ordered Kuaishou to crack down on its harmful and vulgar content. Apart from content, fake products listed on Kuaishou also raised the public concern. In December 2020, Guangzhou Municipality Administration for Market Regulation fined USD138,000 on a celebrity influencer of Kuaishou, Simba, who sold counterfeit birds-nest products in his livestreaming room on Kuaishou.
Chinese regulators are enhancing the supervision over the short video industry. In November 2020, National Radio and Television Administration (NRTA) released new livestreaming rules that ban teenagers from gifting, limiting the amount of virtual gift that a single user can buy, also requiring users to register with their real names. These requires Kuaishou to strengthen its risk management ability and avoid the chance of collapse.
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Reference
https://www.caixinglobal.com/2021-01-19/kuishou-ipo-could-be-only-weeks-away-101652665.html
https://www.ft.com/content/2b7a8bec-7f01-45b8-ac9f-1fe3f1cbd1f4
https://www.thepaper.cn/newsDetail_forward_10994930
https://finance.ifeng.com/c/83VBd36qAXR
https://new.qq.com/rain/a/20201217a0coim00
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