HK $ 5.4bn Biggest Tech IPO 2021: Kuaishou threatens to Eclipse TikTok

The real scandal in the field of "social commerce" erupted after February 5, 2021, when Hong Kong Stock Exchange, which is the one of the top 10 largest exchanges in the world in terms of capitalization,stated a record trading performance after the participation of the Chinese service Kuaishou. As a result of the IPO, the application's shares managed to attract $5.4 billion (HK$41.3 billion). 

According to experts, Kuaishou's meteoric rise in profitability to date was the largest tech IPO of the previous year (after Uber went public in May, 2019, and its initial public offering in the U.S. raised $8.1 billion). 

It is possible that the popularity of the Kuaishou service, which is valued at $160 billion after bidding, could be a sunset for its main domestic competitor, the similar service TikTok, known in China as the Douyin brand. 

The phenomenon of Kuaishou's popularity in exchange trading

During the first day of trading, Kuaishou Technology's stock price rose up to 161%, boosting the company's total capitalization value to HK$1.26 trillion or $163 billion. 

The company planned to sell more than 365 million securities (HK$105-115/share).

At the start of trading the stock showed a rise of 194%, which exceeded the IPO price cap of HK$338 ($43.6).  

In the Financial Times the reason for the soaring shares of Kuaishou Technology called the decision of the Chinese government to tighten control over services with live broadcasting (streaming), which may have a negative impact on the development of the industry. It is about the introduction by the State Administration of Radio, Film and Television from November 2020 of new rules for the industry, which includes the service Kuaishou, where users have the opportunity not only to interact with online performers, but also to send them gifts.

Restrictions were placed on the purchase of virtual gifts by users under the age of 18 (a large part of the service's audience), as well as on the amount of spending for each user. In its IPO prospectus, Kuaishou emphasized the possibility of negative trends for its profitability and business development due to any restrictions. According to statistics, the 2020 estimate for the virtual gift market in China was 180 billion yuan ($27 billion).

HK $ 5.4bn Biggest Tech IPO 2021: Kuaishou threatens to Eclipse TikTok review

About the Kuaishou service 

Kuaishou, which was launched in March 2011, is the second most-used short video service in the country, also known as Kwai, which is considered a "people's" site for creating and watching short videos. 

Kuaishou's founder and CEO is Su Hua, a Chinese billionaire Internet entrepreneur and former Google employee, and his companion, chief product officer Cheng Yixiao, a programmer.

The main competitor is the service with similar functionality TikTok (Douyin). 

The ability to purchase goods within the app has added to Kuaishou's competition with the Chinese online store Taobao (owner of Alibaba Group). 

The app, which literally translates from Chinese as "quick fix," is aimed at ordinary people to publish simple short user-generated videos. 

Kuaishou's partner is e-commerce site JD.com.

Kuaishou has published 30 billion videos. 

Monetization is possible in two ways - through advertising and virtual gift trading. The main way of monetization on the site is the sale of virtual items to users during the streams. Any user can send his favorite blogger a virtual symbolic gift (a rose - 5 yuan (80 cents), a space rocket - 500 yuan ($77.5). The Japan Times notes that it is this option that has brought Kuaishou Technology a resounding success.

In 2020, the app's active audience is 262.4 million users/day. In comparison, TikTok (Douyin) collected almost twice as many in the same period. 

HK $ 5.4bn Biggest Tech IPO 2021: Kuaishou threatens to Eclipse TikTok news

Kuaishou vs TikTok 

Kuaishou is interested in a different audience segment, than Tik Tok is. 

Unlike its main competitor in China, TikTok (Douyin), which, like the vast majority of popular Internet corporations, chases representatives of megacities (Beijing, Shanghai) and provides more traffic to already promoted bloggers, Kuaishou focuses on users from smaller communities. 

In videos on the Kuaishou platform, users tend to show and talk about the daily life and interests of the provinces, and about news from the backcountry. This makes it possible for an unknown villager from yesterday to gain popularity in an instant by posting his or her video on the service.

By choosing simple and easy-to-understand content for ordinary people, the service inspires their trust.  As a result, Kuaishou social network is in demand among advertisers who earn on psychology: if a customer trusts the video, he is loyal to everything the platform offers, i.e., he will actively buy the product offered here.

Together with its partner JD.com., Kuaishou invites bloggers (streamers) to advertise products live on air. This way representatives of a multimillion audience can learn about products (over 262 million people are active daily on the site). 

According to statistics, 90% of the population of China lives in small towns and villages, so this approach allows Kuaishou to demonstrate a conversion rate in purchases 3-5 times higher than that of TikTok (Douyin).

Kuaishou's financial performance 

In the first nine months of 2020, the company had revenue of 40.68 billion yuan ($6.2 billion). The increase in profit compared to 2019 is 49%. 

Sales of virtual items accounted for over 60% of profits. 

The Kuaishou service gets about 32% of its total revenue from advertising.

The rest of the company's profit comes from e-commerce.

The company's net loss in 2020 is 7.2 billion yuan ($1.1 billion). 

In comparison, the main competitor earns mainly from advertising, the profit of which accounts for about 60% of TikTok (Douyin)'s total revenue.

Since its founding, Kuaishou has managed to attract $4.4 billion in investment in eight rounds. Chinese Internet tycoon Tencent has made the bulk of the investment. 

Successful bet on the Hongbao factor

The phenomenon of "red envelopes" (hongbao), a popular way to give gifts to family members,friends and acquaintances, is part of East Asian culture, particularly in China. 

The popularity of streaming services is increasing attention to virtual hongbao. Kuaishou.have made one of their key mechanics the ability to send a "red envelope" to streamers and bloggers for free or pay by completing any tasks. 

The Asian region has enormous growth potential for companies in the digital economy. Although streaming can bring big profits in the near future, Kuaishou's popularity is expected to be influenced by Internet marketing and e-commerce tools. It is possible that Kuaishou will succeed in overtaking TikTok. 

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