Internet & Tech

Rising up the ranks

Kuaishou files for Hong Kong IPO

Jay-Chou-w

Chou: singing Kuaishou’s praises

When Jay Chou greeted his fans on a social media account in mainland China in May, there was general astonishment. The surprise came partly because the Taiwanese king of pop had never had a mainland-based account before, but also because Chou had chosen a livestreaming platform more commonly associated with less sophisticated customers in third and fourth-tier cities: Kuaishou.

In many ways Chou’s move marked a transformation at the Beijing-based unicorn as it tried to shift its user base eastwards to include more affluent people living in China’s coastal regions. Its business model has also morphed from monetising virtual gifting (see WiC433) to selling marketing services and growing its livestreaming roster (see WiC476).

Leveraging its capacity to build hundreds of thousands of online fan clubs across its fast-expanding universe, Tencent-backed Kuaishou is hoping to become a vast marketplace for goods and services – an ambition it plans to finance through an initial public offering in Hong Kong early next year. The planned $500 million fundraising is targeting a valuation of $50 billion, local media has claimed, which would be at least 10 times rival JOYY’s recent valuation (see WiC517), and three times that of BiliBili.

There’s an argument that the higher value is justified by Kuaishou’s considerable user base, claims Sohu, a news portal. The company had 485 million monthly active users (MAUs) as of June. That compares with more established e-commerce sites such as JD.com with 417 million users in the same period, and Pinduoduo’s 569 million.

With nearly half of Kuaishou’s customers now coming from tier-1 and tier-2 cities, the company also believes it is better positioned to monetise traffic to its platforms via livestreaming e-commerce. Over 60% of the users who make purchases in a given month have made at least one more in the following month, it says. As a result gross merchandise value (GMV) for e-commerce transactions jumped 32 times on the year, crossing Rmb109 billion ($16.54 billion) in the first half. The GMV target for the full year – which was revised upwards in May – is Rmb250 billion, compared to market leader Taobao Live’s Rmb500 billion and archrival Douyin’s Rmb200 billion, according to 36Kr.

The growing share of online marketing services in Kuaishou’s revenues – from 5% of sales in 2017 to 28% in June – shows how it is being recognised as an effective sales tool. Another driver for its online marketplace business is strong demand for education services (see WiC517). Around 16 million students are now taking lessons through Kuaishou, which also provides access to classes offered by edtech majors such as GSX Techedu, Yuanfudao and VIPKID.

Another area where Kuaishou is betting big is online gaming. In August it acquired YTG, an eSports team competing in the Honor of Kings franchise. Two months later it joined Tencent – which holds a 21% stake in Kuaishou – to invest in VSPN, an eSports events organiser. As of July its daily active gaming audience hit 90 million, representing nearly a third of its daily active user (DAU) base.

Taking its cue from its main rival Bytedance’s Douyin, Kuaishou says that it would invest the proceeds of an IPO in artificial intelligence and data analytics so as to further increase the stickiness of its platforms. A recent survey by TalkingData, a Beijing-based research firm, found that Kuaishou’s typical users spend roughly an hour on its platform every day, which trails average times on Douyin by a little more than 10 minutes.

Not that any of this is profitable at the moment. For the January-June period Kuaishou recorded a loss of Rmb68 billion on revenues of Rmb25 billion, partly as a result of its marketing expenses surging 4.6 times. Kuaishou’s founders Su Hua, formerly a software engineer at Google and Baidu, and Cheng Yixiao, an alumnus of HP and Renren, will also have to contend with new regulations that seem likely to impose spending limits on customers during livestreaming sales, as well as a new set of restrictions on virtual gifting to celebrity hosts by younger fans. Analysts are already warning that the stricter rules could curtail Kuaishou’s financial prospects, putting some pressure on the $50 billion valuation for its prospective IPO.


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