Everything you need to know about the Kuaishou IPO

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Kuaishou has more daily active users than Twitter and Snapchat. Still, it wouldn't be all that surprising if you've never heard of the short-form video and livestreaming platform; Kuaishou maintains a relatively low profile outside of China. Within China, the Beijing-based company has charted an ambitious plan to create a platform that seamlessly blends ecommerce, livestreaming, short-form video and gaming distribution.
Kuaishou shares tripled during its Feb. 5 debut, rising from the listing price of HK$115 to a high of HK$345. Eventually the shares settled down to HK$300, giving Kuaishou a $159 billion market capitalization. Kauishou managed to raise $5.4 billion in the lead-up to the Hong Kong stock exchange debut — no internet company besides Uber has ever raised more through an IPO.
Here's everything you need to know about Kuaishou and its market debut.
Since launching as a GIF-making tool in 2011, Kuaishou has transformed itself into a short-form video and livestreaming juggernaut with 776 million monthly active users. The average daily active user on Kuaishou spends over 85 minutes on the platform per day.
Kuaishou's short-form video app isn't as popular as ByteDance's Douyin (China's version of TikTok), which reported 600 million daily active users in August 2020. Kuaishou is nevertheless growing at a rapid pace, with daily active users nearly doubling every year since 2017. For the six months ended June 30, 2020, Kuaishou reported 257.7 million daily active users, up from 155.4 million during the same period in 2019. Relative to those on Douyin, Kuaishou users tend to be younger, less educated and less cosmopolitan. This makes it more difficult for Kuaishou to monetize its short-form video users through targeted ads and ecommerce integrations.
Kuaishou's livestreaming platform is part Twitch, part QVC. Users can broadcast their gameplay to a live audience and receive virtual gifts from viewers in return. The app also has a separate games tab, allowing people to download mobile games from third parties, which in turn gives Kuaishou a share of in-app purchase revenue. On the ecommerce side, influencers take to Kuaishou to host live events where they promote products. Kuaishou receives commission on ecommerce items sold through its platform. Merchants can either sell directly through Kuaishou or through third-party integrations with partners such as JD.com. Kuaishou has also partnered with Alibaba in the past, as when the companies together generated 2.1 billion yuan ($324 million) in sales from Singles' Day 2019.
Kuaishou issued preliminary financial filings ahead of its Hong Kong stock exchange listing. The filing showed that Kuaishou has prioritized user growth ahead of profitability: In the first six months of 2020, Kuaishou posted a net loss of 68 billion yuan ($10.5 billion) from its total revenue of 25 billion yuan ($3.9 billion). The financial disclosures show that Kuaishou hasn't posted an annual profit since 2017, though it has managed to come close to or exceed doubling more annual revenue between 2017 and 2019.
Kuaishou recognizes three revenue segments: livestreaming, online marketing services and other services. Livestreaming accounted for nearly 69% of total revenue in the first sixth months of 2020, while online marketing services accounted for 28% and other services just 3%. Investors may worry that Kuaishou is too dependent on livestreaming revenue, which is itself beholden to a handful of celebrity influencers; in 2019, for instance, the celebrity influencer Xinba accounted for more than 20% of the gross merchandise value sold on Kuaishou, according to the South China Morning Post.
Selling and marketing expenses are a key contributor to Kuaishou's net losses. In the first half of 2020, Kuaishou accrued 13.7 billion yuan ($2.1 billion) in selling and marketing expenses, which was more than half the company's total revenue. In previous years, Kuaishou mostly managed to keep these expenses below 20% of total revenue. The company resorted to more aggressive growth tactics in 2020, the most notable of which was a Lunar New Year promotion in which it gave away 1 billion yuan ($154 million) worth of virtual red envelopes to some 2.2 million viewers.
Two themes stand out from Kuaishou's financial filing: government regulation and long-term profitability.
China's government is monitoring the livestreaming industry closely, and in late 2020 it imposed new rules that ban teenagers from gifting to streamers and require all users to register with their real names. Kuaishou discusses how future regulation could affect its business:
In terms of achieving long-term profitability, Kuaishou emphasizes the risk associated with its reliance on influencers and its general user monetization challenges:
It's hard to precisely say how firms will benefit from the IPO, since Kuaishou's financial disclosure has been partially redacted and the investor roadshow is ongoing.
Here's where things stood when Kuaishou filed its preliminary financial filing in November 2020:
And based on an IPO roadshow terms sheet obtained by Nikkei Asia, Kuaishou has also attracted the following investors:
Update: This story was updated Feb. 5 to include information on Kuaishou's Hong Kong Stock Exchange's debut.