(WSJ) TikTok was undoubtedly the most talked about app in 2020, both for its viral popularity and the resulting political troubles. Its largest competitor in China hasn’t received as much scrutiny abroad, but could still make a splash in the market.
The coming initial public offering of Tencent-backed Kuaishou—“fast hand” in Chinese—in Hong Kong could be one of the city’s biggest. Founded in 2011 as an app for making GIFs—animated images used in chats—the company is now the second-largest short-video app in China, behind Douyin, the Chinese version of TikTok. Analysts at Morgan Stanley, one of the IPO sponsors, value it between $70 billion and $97 billion.
Kuaishou has 262 million users spending an average 86 minutes every day on the app. While Douyin was first known for goofy videos with music and dance that drew young people in, Kuaishou began as an app that documented daily lives of ordinary people outside of big cities. These days, more and more users are on both apps, but Kuaishou’s users are still more concentrated in smaller cities.
Kuaishou made nearly two-thirds of its revenue from live streaming in the first nine months of 2020: Users buy virtual gifts to give performers as tips. Live streaming was very popular in China a few years ago, but has now been usurped by short videos. Such a shift is prominent in Kuaishou’s financials too: Live streaming accounted for 95% of revenue in 2017.
Live streaming’s contribution will likely continue to fall, but what replaces it is more exciting for investors. The company’s advertising revenue, springboarding from the popularity of its short-video app, tripled year-over-year in the first nine months in 2020 and now accounts for around a third of revenue. The ad business also is likely more profitable than live streaming. Kuaishou’s gross profit margin has expanded in the past few years.
Kuaishou is trying to ride another wave too: e-commerce on its live-streaming platform. Consumers increasingly tune in to live shows by influencers and buy products such as cosmetics and smartphones they promote. Kuaishou takes a cut on the sale of goods through its platform.
Kuaishou dipped into an operating loss last year as it ramped up marketing costs. But investors seem willing to overlook that to bet on growth. Unprofitable Bilibili, a Chinese video platform popular among young people, is now valued at $43 billion, after a 565% rally since the beginning of 2020. And Kuaishou’s revenue, even excluding its slowing live-streaming business, is already 84% higher than Bilibili’s.
Kuaishou has successfully caught the attention—and apparently, the wallets—of its users. Investors look likely to pay out handsomely as well.
Source: Wall Street Journal by Jacky Wong
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