Kuaishou's Losses: China's Video Sector Burn Rate

For several months, speculation has circulated regarding ByteDance potentially launching initial public offerings for TikTok and Douyin as separate entities. Recent reports from Bloomberg indicate that ByteDance is currently seeking a pre-IPO funding round of $2 billion, which would value the company at an impressive $180 billion.

Prior to any potential moves by ByteDance, its Chinese competitor, Kuaishou, has taken steps toward going public, submitting its IPO filing in Hong Kong Thursday evening. The associated prospectus provides insights into a competitive landscape characterized by substantial growth alongside significant expenditures.

Founded in 2011 by a former Google engineer as a platform for sharing GIFs, Kuaishou has developed into a major rival to Douyin, TikTok’s Chinese counterpart. Tencent holds a 21.5% stake in the company. Kuaishou reported a net loss of 6.8 billion yuan ($1 billion) during the first half of 2020, with an operating loss of 7.57 billion yuan. This contrasts with an operating profit of 1.1 billion yuan recorded during the same period in the previous year.

This increase in losses was partly due to the company’s extensive promotion of its streamlined version, Kuaishou Express, designed to appeal to less technologically experienced users in China. Unlike ByteDance, Kuaishou has experienced limited success in international markets and is heavily reliant on continued expansion within China.

The company’s selling and marketing costs increased dramatically by 354.1%, rising from 3 billion yuan in the first half of 2019 to 13.7 billion yuan in the first half of this year. However, this investment appears to have yielded positive results, as the lite app attracted 100 million daily active users within a year, demonstrating a clear “pay-to-play” dynamic.

As of June, the primary Kuaishou app had reached 302 million daily users, who dedicated over 85 minutes each day to viewing short videos and live broadcasts. By comparison, Douyin surpassed 400 million daily active users in January.

Although categorized as a “short-video app,” Kuaishou generates the majority of its revenue – 68.5% in the first half of the year – from live streaming, where viewers can purchase virtual gifts for hosts ranging in price from 1 to 2,000 yuan. Additional revenue streams include advertising, which contributed 28% of its income, along with smaller sources like e-commerce and gaming.

In contrast, Douyin reportedly derived approximately 67% of its revenue from advertising last year, with live streaming accounting for 17%, as previously reported by TechCrunch.

This difference in revenue composition reflects the distinct core functions of each app. Kuaishou emphasizes user engagement, with over a quarter of its 776 million monthly users actively creating content. This positions Kuaishou as a more social platform, fostering frequent interaction between viewers and creators through features like live streaming and virtual gifting.

Douyin, utilizing algorithms that prioritize high-quality content, functions more as a media outlet, as noted by some Chinese venture capitalists, making it an effective platform for displaying advertisements.

In terms of overall revenue, Kuaishou generated 39.1 billion yuan last year, approximately one-third of ByteDance’s total revenue for the same period. It’s important to note, however, that ByteDance also benefits from its successful news and information aggregator, Jinri Toutiao.