A Kuaishou application interface on a mobile phone, Yichang, Hubei province, China, 20 January 2021. Kuaishou is preparing for an initial public offering (IPO) in Hong Kong.
Costfoto | Barcroft Media | Getty Images
GUANGZHOU, China – Shares in the Chinese short film company Kuaishou began trading on Friday in Hong Kong, marking the start of its life as a publicly traded company.
Kuaishou shares rose nearly 200% to open at 338 Hong Kong dollars. The company priced its shares at 115 Hong Kong dollars, which was at the top of its range. The initial public offering (IPO) raised 41.28 billion Hong Kong dollars ($ 5.32 billion).
It is another victory for the Hong Kong stock exchange, which has managed to attract a number of high-profile Chinese technology listings.
But what is Kuaishou and how does it make money? CNBC follows the company’s business model.
What does Kuaishou do?
The company was founded in 2011 and started as a mobile app called GIF Kuaishou, which allows users to create animated images called GIFs (graphics interchange format).
In 2013, the short video and social media platform was launched, followed by live streaming in 2016.
Kuaishou apps now have 769 million monthly active users.
It is also starting to expand into other areas, such as e-commerce.
How does Kuaishou make money?
Kuaishou generated revenue of 40.68 billion yuan ($ 6.2 billion) in the nine months ended September 30, 2020 – an increase of 49% yoy.
However, the company posted a loss in that period, reporting an adjusted net loss of 7.24 billion yuan as marketing expenses increased.
Kuaishou said it had 262.4 million daily active users for its app in the first nine months of 2020, compared to 165.2 million in the same period in 2019. Its monthly paying users increased from 48.5 million to 59.9 million in that period .
The company makes money from its users in several ways.
1. Live broadcast: The main driver of revenue is its live streaming business. This involves users who buy virtual items from Kuaishou to gift their favorite streamers. Live streaming revenue generated 25.31 billion yuan of revenue in the first nine months of 2020, representing about 62% of total sales.
2. Ads and online marketing: Kuaishou also makes money from online marketing or advertising services, which earned 13.34 billion yuan in the nine months ending September 30, an annual increase of more than 200%. This represented about 32% of total revenue.
3. E-commerce and games: The Chinese tech company has also started to venture into e-commerce and mobile games. Users can purchase items from streamers online through the Kuaishou app. Kuaishou said that transactions worth 204.06 billion yuan were made easier through its app in the first nine months of 2020 – an increase of more than 1,100%. Not all of this will translate directly into revenue for Kuaishou.
Risks for Kuaishou
The Kuaishou IPO comes at a time when Chinese authorities are intensifying scrutiny in the technology sector. The State Administration of Market Regulation of China released a draft anti-monopoly rules last year aimed at digital platforms.
In November, the Chinese government also introduced rules on live purchases, which include limits on user spending and restrictions on the purchase of items by minors.
The markets in which we operate are highly competitive and we face significant competition …
“Given that the Internet business is highly regulated in China, intensified government regulation of the short video, live streaming and e-commerce industries in China may also restrict our ability to maintain or increase our user base or user traffic. to our platform, which will materially and negatively impact our business operations and financial results, “warned Kuaishou in his prospectus for an initial public offering.
The company also competes with Douyin, the Chinese version of the short video sharing application TikTok, managed by internet giant ByteDance. Douyin has 600 million daily active users, compared to 262.4 million Kuaishou users.
Tencent, a major investor in Kuaishou, also launched its own short video feature in its WeChat messaging app. Competition is also increasing.
“The markets in which we operate are highly competitive and we face significant competition from Internet companies operating content-based social platforms, online marketing businesses and e-commerce platforms in China,” said Kuaishou.
“If we are unable to compete effectively, our business, financial condition, results of operations and prospects could be adversely and materially affected.”