Kuaishou, a Chinese video app largely underrated outside of China, has just completed a massive IPO in Hong Kong. The app is by far the biggest rival to Douyin, the Chinese version of TikTok, and unlike many western video platforms that make money from ads and subscriptions, Kuaishou’s Cash Cow is the tipping business.
Kuaishou’s shares opened in Hong Kong on Friday at HK $ 338 ($ 43.6) apiece, up 194% from the IPO price of HK $ 115 ($ 14.8). This catapults its market cap to nearly HKD 1.4 trillion ($ 180 billion). The company pocketed approximately $ 5.4 billion from the listing for a total of 365,218,600 shares without the option of total allotment.
Kuaishou, backed by Tencent, now has a refilled case to invest in growth and hopefully work towards profitability. For the first nine months of 2020, the app recorded an adjusted net loss of 7.2 billion yuan ($ 1.1 billion) compared to an adjusted profit of 1.8 billion yuan for the same period last year.
Kuaishou’s stock has been a huge hit with both institutional financiers and retail investors in China. Many of them are familiar with the app, which had 481 million monthly users in the eleven months ended November. The app broke a record as the most oversubscribed deal in Hong Kong, drawing retail investor demand totaling $ 164.8 billion, the South China Morning Post reported. His stake reached HK $ 322.8 on the gray market platform operated by Phillip Securities Group and HK $ 421 on the online broker Futu Securities.
Like Douyin, Kuaishou began as a platform for creating and sharing 15-second short videos (after a brief period as a GIF app) and later expanded to live streaming. The transition is natural as creators who have built a name may seek further interaction with followers, and followers may want to express their loyalty and affection for the creators. Live streaming and virtual gift giving meet this need.
Kuaishou has three main methods of monetization, with live streaming making up the majority of its revenue. Fifty-eight million Kuaishou users spent monthly on live video for the eleven months ended November, and each paying user earned an average of 47.6 yuan ($ 7.36) in revenue.
The app also sells ads, with marketing revenue of 71.4 yuan ($ 11) per user over the reporting period. After all, Kuaishou allows creators to sell products. Gross product value – an industry metric loosely used to measure e-commerce transactions – generated directly on Kuaishou reached 332.7 billion yuan ($ 51.4 billion) during the reporting period.
By comparison, the live streaming function at Alibaba’s Taobao Bazaar generated over 400 billion yuan GMV in the twelve months to December.
While Kuaishou generates growing revenues from live streaming, regulatory risks emerge in the background. The Chinese government has banned users under the age of 18 from purchasing virtual gifts. It has also urged platforms to limit users’ monthly spending on virtual gifts, although regulators have not set or suggested a limit.
Kuaishou recognizes the risk and states in its prospectus that “any ultimately-imposed restrictions on user spending on virtual gifting may adversely affect our virtual gifting income and our financial performance.”
Until regulators take further action to curb virtual gift giving, Kuaishou is likely to continue to thrive as it works to diversify its business.