A Kuaishou app interface on a mobile phone, Yichang, Hubei Province, China, January 20, 2021. Kuaishou prepares for an initial public offering (IPO) in Hong Kong.
Costfoto | Barcroft Media | Getty Images
GUANGZHOU, China – Shares of Chinese short video app company Kuaishou began trading in Hong Kong on Friday, marking the beginning of its life as a listed company.
Shares in Kuaishou rose nearly 200%, starting at 338 Hong Kong dollars. The company priced its shares at 115 Hong Kong dollars, which was the best in its range. The initial public offering (IPO) raised 41.28 billion Hong Kong dollars (5.32 billion dollars).
This is another victory for the Hong Kong Stock Exchange, which has managed to attract a number of well-known Chinese technology listings.
But what is Kuaishou and how does it make money? CNBC walks through the company’s business model.
What does Kuaishou do?
The company was founded in 2011 and launched a mobile app called GIF Kuaishou, which allows users to create animated images called GIFs (graphic changer format).
In 2013, the short video and social media platform was launched, followed by live streaming in 2016.
Kuaishou’s programs now have 769 million active users per month.
It also starts in other areas like e-commerce.
How does Kuaishou earn money?
In the nine months ended September 30, 2020, Kuaishou brought in revenue of 40.68 billion yuan ($ 6.2 billion) – an increase of 49% year-on-year.
However, the company made a loss in that period and reported an adjusted net loss of 7.24 billion yuan as marketing costs 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 grew to 59.9 million from 48, 5 million in that period.
The company earns money from its users in several ways.
1. Live stream: The main driver of revenue is its live streaming business. This involves users purchasing virtual items from Kuaishou to donate to their favorite streamers. Live revenue generated 25.31 billion yuan in revenue in the first nine months of 2020, accounting for approximately 62% of total sales.
2. Advertising and online marketing: Kuaishou also earns money from online marketing services or advertising that brought in 13.34 billion yuan in the nine months ended September 30, an increase of more than 200% year-on-year. That was about 32% of total revenue.
3. Ecommerce and Games: The Chinese technology firm also started e-commerce and mobile games. Users can purchase items from online streamers via the Kuaishou app. Kuaishou said that the transactions of 204.06 billion yuan in the first nine months of 2020 were facilitated via its app – an increase of more than 1100%. Not all of these things will be translated directly into Kuaishou income.
Risks for Kuaishou
Kuaishou’s IPO comes at a time when Chinese authorities are intensifying investigations into the technology sector. China’s state administration for market regulation last year introduced concepts against monopolistic rules aimed at digital platforms.
In November, the Chinese government also introduced rules regarding direct shopping, which include restrictions on consumer spending and restrictions on minor items.
The markets in which we operate are very competitive, and we face great competition …
“As the Internet industry in China is heavily regulated, the tightened government regulation of the short video, live streaming and e-commerce industries in China may also limit our ability to maintain or expand our user base or user traffic to our platform, which will materially and negatively impact our business operations and financial results, ”Kuaishou warned in its IPO prospectus.
The company is also a competitor to Douyin, the Chinese version of the short video sharing program TikTok, run by internet giant ByteDance. Douyin has 600 million users daily compared to Kuaishou’s 262.4 million users.
Tencent, a major investor in Kuaishou, also introduced its own short video feature in its WeChat messaging app. The competition is also increasing.
“The markets in which we operate are very competitive, and we are facing significant competition from Internet companies operating social media, online marketing businesses and e-commerce platforms in China,” Kuaishou said.
“If we do not compete effectively, our business, financial condition, operating results and prospects could be materially and adversely affected.”