An interface of the Kuaishou application on a mobile phone, Yichang, Hubei Province, China, January 20, 2021. Kuaishou is preparing 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.
Kuaishou shares rose nearly 200% to open at $ 338 in Hong Kong. The company priced its shares at $ 115 from Hong Kong, which was at the top of its range. The initial public offering (IPO) raised $ 41.28 billion from Hong Kong ($ 5.32 billion).
It marks another gain for the Hong Kong Stock Exchange, which has managed to attract a number of high-tech Chinese listings.
But what is Kuaishou and how does he make money? CNBC goes through the company’s business model.
What is Kuaishou doing?
The company was founded in 2011 and started as a mobile application called GIF Kuaishou, which allows users to create animated images called GIFs (graphics exchange format).
In 2013, the short video and social media platform was launched, followed by live streaming in 2016.
Kuaishou applications now have 769 million monthly active users.
It is also starting to move into other areas, such as e-commerce.
How does Kuaishou make money?
Kuaishou brought in revenue of 40.68 billion yuan ($ 6.2 billion) in the nine months ended September 30, 2020 – a 49% year-on-year increase.
However, the company recorded a loss during that period, reporting an adjusted net loss of 7.24 billion yuan, as marketing expenses increased.
Kuaishou said it has 262.4 million daily active users for its application in the first nine months of 2020, up from 165.2 million in the same period in 2019. Its monthly paying users have risen to 59.9 million. to 48.5 million in that period.
The company makes money from its users in many ways.
1. Live streaming: The main revenue engine is its live streaming business. This involves users who buy virtual items from Kuaishou to give to their favorite gifts. Live streaming revenue brought in 25.31 billion yuan in the first nine months of 2020, accounting for about 62% of total sales.
2. Ads and online marketing: Kuaishou also earns money from online marketing or advertising services that brought in 13.34 billion yuan in the nine months ended September 30, an increase of more than 200% year-on-year. This accounted for about 32% of total revenue.
3. E-commerce and games: The Chinese technology company has also begun to venture into e-commerce and mobile gaming. Users can purchase items from online streamers through the Kuaishou app. Kuaishou said that transactions worth 204.06 billion yuan were facilitated through its application in the first nine months of 2020 – an increase of over 1,100%. Not all of this will translate directly into revenue for Kuaishou.
Risks for Kuaishou
Kuaishou’s IPO comes at a time when Chinese authorities are stepping up control of the technology sector. China’s state administration for market regulation last year launched draft antitrust rules for digital platforms.
In November, the Chinese government also introduced rules on live shopping, which include limits on user spending and restrictions on the purchase of items by minors.
The markets we operate in are extremely competitive and we face significant competition …
“Given that the internet business is highly regulated in China, intensified government regulation of China’s short video, live streaming and e-commerce industries could also restrict our ability to maintain or grow the base. our user experience or user traffic to our platform, which will have a material and negative impact on our business operations and financial results, ”Kuaishou warned in his IPO prospectus.
The company is also a competitor to Douyin, the Chinese version of the short video sharing application TikTok, run by internet giant ByteDance. Douyin has 600 million daily active users compared to Kuaishou’s 262.4 million users.
Tencent, a major investor in Kuaishou, has also launched its own short video feature in its WeChat messaging app. Competition is also growing.
“The markets we operate in are highly competitive and we face significant competition from internet companies operating content-based social platforms, online marketing companies and e-commerce platforms in China,” Kuaishou said.
“If we fail to compete effectively, our business, financial condition, results of operations and prospects may be materially and adversely affected.”