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 launched in Hong Kong on Friday, marking the start of its existence as a publicly traded company.
Kuaishou’s shares skyrocketed nearly 200% to open at USD 338. 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 marks another victory for the Hong Kong stock exchange, which has managed to attract some high-profile Chinese tech listings.
But what is Kuaishou and how does it make money? CNBC goes through the company’s business model.
What does Kuaishou do?
Founded in 2011, the company started as a mobile app called GIF Kuaishou, which allows users to create animated images called GIFs (Graphics Exchange Format).
The short video and social media platform was launched in 2013, followed by live streaming in 2016.
Kuaishou’s apps now have 769 million monthly active users.
It is also beginning to penetrate into other areas such as e-commerce.
How does Kuaishou make money?
Kuaishou posted sales of 40.68 billion yuan ($ 6.2 billion) in the nine months ended September 30, 2020 – that’s a 49% year-on-year increase.
However, the company recorded a loss during that period, posting an adjusted net loss of 7.24 billion yuan as marketing costs exploded.
Kuaishou said it had 262.4 million daily active users for its app in the first nine months of 2020, up from 165.2 million in the same period in 2019. The monthly paid number of users grew from 48.5 million over that period to 59 , 9 million.
The company makes money from its users in a number of ways.
1. Live streaming: The main source of income is the live stream activities. This means that users purchase virtual items from Kuaishou to give as a gift to their favorite streamers. Live streaming revenues brought in 25.31 billion yuan in revenue in the first nine months of 2020, accounting for about 62% of total revenue.
2. Advertisements and online marketing: Kuaishou also makes money from online marketing services or advertising that fetched 13.34 billion yuan in the nine months ended September 30, up more than 200% year-on-year. This accounted for about 32% of total sales.
3. E-commerce and games: The Chinese technology company is also venturing into e-commerce and mobile games. Users can purchase items from online streamers through the Kuaishou app. Kuaishou said 204.06 billion yuan worth of transactions were facilitated through the app in the first nine months of 2020 – an increase of more than 1,100%. None of this directly translates into revenue for Kuaishou.
Risks for Kuaishou
Kuaishou’s IPO comes at a time when Chinese authorities are stepping up scrutiny of the technology sector. China’s state administration for market regulation last year released draft anti-monopoly rules targeting digital platforms.
In November, the Chinese government also introduced live streaming shopping rules, including user spend limits 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 in China is highly regulated, intensified government regulation of China’s short video, live streaming, and e-commerce industry could also limit our ability to drive our user base or traffic to our platform. maintain or expand. will have a material and negative impact on our business 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 app TikTok, run by internet giant ByteDance. Douyin has 600 million active users daily, compared to 262.4 million Kuaishou users.
Tencent, a major investor in Kuaishou, has 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 companies and e-commerce platforms in China,” said Kuaishou.
“If we fail to compete effectively, our business, financial condition, results of operations and outlook can be significantly and adversely affected.”