Kuaishou's $5 Billion IPO: Everything You Need to Know About the TikTok Rival

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  • Shares of Chinese short video app company Kuaishou started trading on Friday in Hong Kong, marking the start of the company's life as a publicly listed company.
  • Kuaishou brought in revenue of 40.68 billion yuan in the nine months ended Sep. 30, 2020, a 49% year-on-year rise.
  • The company makes money primarily through livestreaming and virtual gifts, as well as advertising and e-commerce.

GUANGZHOU, China — Shares of Chinese short video app company Kuaishou started trading on Friday in Hong Kong, marking the start of its life as a publicly listed company.

Shares of Kuaishou soared nearly 200% to open at 338 Hong Kong dollars. The company priced its shares at 115 Hong Kong dollars, which was at the top of its range. The initial public offering (IPO) raised 41.28 billion Hong Kong dollars ($5.32 billion).

It marks another win for the Hong Kong stock exchange which has managed to attract a number of high-profile Chinese tech listings.

But what is Kuaishou and how does it make money? CNBC runs through the company's business model.

What does Kuaishou do?

The company was founded in 2011 and started out as a mobile app called GIF Kuaishou, which lets users create animated images called GIFs (graphics interchange format).

In 2013, the short video and social media platform was launched followed by live-streaming in 2016.

Kuaishou's apps now have 769 million monthly active users.

It is also starting to push into other areas such as e-commerce.

How does Kuaishou make money?

Kuaishou brought in revenue of 40.68 billion yuan ($6.2 billion) in the nine months ended Sep. 30, 2020 — that's a 49% year-on-year rise.

However, the company swung to a loss in that period, reporting an adjusted net loss of 7.24 billion yuan as marketing expenses ballooned.

Kuaishou said it had 262.4 million daily active users for its app in the first nine months of 2020, up from 165.2 million in the same period in 2019. Its monthly paying users grew to 59.9 million from 48.5 million in that period.

The company makes money off its users in a number of ways.

1. Live-streaming: The main revenue driver is its live streaming business. This involves users buying virtual items from Kuaishou to gift to their favourite streamers. Live streaming revenue brought in 25.31 billion yuan of revenue in the first nine months of 2020, accounting for around 62% of total sales.

2. Ads and online marketing: Kuaishou also makes money from online marketing services or advertising which brought in 13.34 billion yuan in the  the nine months ended Sep. 30, a more than 200% year-on-year rise. This accounted for around 32% of total revenue. 

3. E-commerce and games: The Chinese tech firm has also began venturing into e-commerce and mobile games. Users can purchase items from online streamers via the Kuaishou app. Kuaishou said that 204.06 billion yuan worth of transactions were facilitated via its app in the first nine months of 2020 — a rise of more than 1,100%. Not all of this will translate directly into revenue for Kuaishou. 

Risks for Kuaishou

Kuaishou's IPO comes at a time when Chinese authorities are stepping up scrutiny of the technology sector. China's State Administration for Market Regulation released draft anti-monopoly rules last year aimed at digital platforms. 

In November, the Chinese government also introduced rules around live-streaming shopping which includes limits on user spending and restrictions on minors buying items. 

"Given that the internet business is highly regulated in China, intensified government regulation of the short video, live streaming and e-commerce industries in China could also restrict our ability to maintain or increase our user base or the user traffic to our platform, which will materially and negatively impact our business operations and financial results," Kuaishou warned in its IPO prospectus.

The company is also a competitor to Douyin, the Chinese version of short video sharing app TikTok, run by internet giant ByteDance. Douyin has 600 million daily active users versus Kuaishou's 262.4 million users.

Tencent, a major investor in Kuaishou, has also launched its own short video feature within its WeChat messaging app. Competition is also ramping up.

"The markets in which we operate are highly competitive, and we face significant competition from internet companies that operate content-based social platforms, online marketing businesses and e-commerce platforms in China," Kuaishou said. 

"If we fail to compete effectively, our business, financial condition, results of operations and prospects may be materially and adversely affected." 

Copyright CNBC
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