Kuaishou's Successful Hong Kong IPO and Business Model

Kuaishou, a prominent Chinese video application that remains relatively unknown internationally, has recently concluded a substantial initial public offering in Hong Kong. This app represents the primary competitor to Douyin, the Chinese iteration of TikTok. Unlike numerous Western-based video platforms reliant on advertising and subscription models, Kuaishou’s primary revenue source is its virtual gifting system.

IPO Performance and Market Capitalization

Trading commenced in Hong Kong on Friday with Kuaishou shares priced at HK$338 ($43.6) each, marking a significant 194% increase from the IPO price of HK$115 ($14.8). This surge propelled the company’s market capitalization to approximately HK$1.4 trillion ($180 billion). The listing generated roughly $5.4 billion for the company, stemming from the sale of 365,218,600 shares, excluding the over-allotment option.

Financial Standing and Investment

Backed by Tencent, Kuaishou now possesses increased capital for investment in future growth initiatives and a pursuit of profitability. However, the app reported an adjusted net loss of 7.2 billion yuan ($1.1 billion) during the first nine months of 2020. This contrasts with an adjusted profit of 1.8 billion yuan recorded during the same timeframe in the preceding year.

Investor Interest and Oversubscription

Kuaishou’s stock has garnered substantial interest from both institutional investors and individual retail investors within China, many of whom are already familiar with the platform. The app boasted 481 million monthly active users as of November. The IPO was notably oversubscribed in Hong Kong, with retail investor demand reaching $164.8 billion, as reported by the South China Morning Post.

Evolution of the Platform

Initially launched as a platform for creating and sharing short 15-second videos – following a prior iteration as a GIF application – Kuaishou subsequently expanded to include livestreaming capabilities. This expansion was a logical progression, as content creators with established audiences often desire increased engagement, and followers frequently seek avenues to demonstrate their support and appreciation.

Revenue Streams and User Spending

Kuaishou derives revenue from three primary sources, with livestreaming constituting the largest portion. In the 11 months ending November, 58 million users spent money on live videos monthly. Each paying user, on average, generated 47.6 yuan ($7.36) in revenue.

Advertising and E-commerce

The app also generates income through advertising, with each user contributing 71.4 yuan ($11) in marketing revenue during the same period. Furthermore, Kuaishou facilitates product sales directly through the platform. The gross merchandise value – a metric used to gauge e-commerce activity – reached 332.7 billion yuan ($51.4 billion) during the period.

Comparison with Alibaba’s Taobao

For context, the livestreaming functionality on Alibaba’s Taobao platform generated over 400 billion yuan in gross merchandise value over the 12 months concluding in December.

Regulatory Considerations

Despite the growth in livestreaming revenue, Kuaishou faces potential regulatory challenges. The Chinese government has prohibited individuals under the age of 18 from purchasing virtual gifts. Additionally, authorities have encouraged platforms to impose limits on monthly spending for virtual gifts, although specific restrictions have not yet been defined.

Potential Impact of Regulations

Kuaishou acknowledges these risks, stating in its prospectus that limitations on user spending on virtual gifting could adversely affect its revenue and overall financial performance.

Future Outlook

Until further regulatory actions are implemented, Kuaishou is expected to maintain its growth trajectory while simultaneously working to diversify its business operations.