China's Kuaishou surges on debut after $5.4b Hong Kong IPO

The company sold 365.2 million shares at HK$115 apiece to raise HK$41.9 billion, according to a filing. Cornerstone investors covered about 45% of the offering. It is the largest private equity-backed IPO in Hong Kong since Postal Savings Bank of China in 2016.

The stock opened at HK$338 on February 5. As of midday, it was trading at HK$310. 

Kuaishou is best known as the key domestic rival to Douyin, ByteDance’s short video business. The two platforms differ in that Douyin is more popular among users in China’s top-tier cities while Kuaishou has a stronger following in lower-tier hubs. Douyin is also said to be considering a Hong Kong IPO.

Kuaishou was established in 2011 as a tool for creating and sharing GIFs. A short video social platform followed in 2013 and an expansion into live-streaming came three years after that.

For the nine months ended September, the company had 305 million average daily active users (DAUs) and 769 monthly active users (MAUs) across its various apps and mini-programs. DAUs accessed Kuaishou apps 10 times a day, spending an average of 86 minutes in total. Content creators account for approximately one-quarter of MAUs and they were responsible for more than 1.1 billion average monthly video uploads.

Revenue is generated through the sale of virtual items – Kuaishou has its own currency, KwaiCoins, that can be exchanged for gifts that users send to other content creators as means of acknowledgment – and online marketing services. In 2018, the company started facilitating e-commerce transactions. It is developing other monetization opportunities, including online gaming.

According to iResearch Consulting, gifting revenues on live stream video platforms in China reached RMB140 billion ($21.6 billion) in 2019 and will hit RMB416.6 billion in 2025. Over the same period, mobile advertising channeled through these platforms is expected to rise from RMB81.4 billion to RMB465.3 billion.

Kuaishou has raised more than $4.8 billion across six rounds of funding, the most recent of which closed in February 2020 at $3 billion. It featured Tencent, Boyu Capital, Temasek Holdings, and the state-owned China Internet Investment Fund, among others. 5Y was the earliest investor, providing Kuaishou’s Series A in 2014. It re-upped in the Series B, which saw the arrival of DCM Ventures and Tencent, with DST and Sequoia joining in the Series C.

Following the IPO, Tencent is the largest external shareholder with 17.7%, followed by 5Y on 13.7%, DCM on 7.5%, and DST Global on 5.3%, the prospectus shows. Other investors include Sequoia Capital China, Baidu, Shunwei Capital, and CMC Group.

Kuaishou reported RMB39.1 billion in revenue for 2019, up from RMB20.3 billion a year earlier. For the first nine months of 2020, revenue was RMB40.7 billion. The live streaming contribution – chiefly gifting – has fallen from more than 90% to 62.2% during this period as the online marketing services business has grown.

Nevertheless, the company’s net losses continue to mount: from RMB12.4 billion in 2018 to RMB19.6 billion in 2019 to RMB97.4 billion for the first nine months of 2020.

Kuaishou shares a portion of its virtual gifting revenue with content creators, but the biggest outlay is sales and marketing. A total of RMB19.8 billion was spent in the first nine months of 2020, compared to RMB9.8 billion in 2019 as a whole. The company said it expects the consequent increase in user numbers and engagement to create more scope for monetization.

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• Topics
• Greater China
• Technology
• Media
• IPO
• TMT
• Tencent
• DST Advisors
• Sequoia Capital
• Boyu Capital
• 5Y capital