Chinese internet company Kuaishou will start trading publicly on Friday in Hong Kong after the loss-making live streaming service raised $5.4 billion in an initial public offering last week.
Kuaishou reported a 68 billion yuan ($10.53 billion) net loss in the first six months of 2020 despite an increase in daily active users over the same period according to the prospectus filed with the HKEX.
"Once Kuaishou is public, there will be higher expectations to start generating a positive return to signal it is sustainable in the long term," Mark Tanner, managing director of consultancy China Skinny, told Business Times.
The final offer price of HK$115 per share sits at the top-end of the range and was reached after the Beijing-based company became the most oversubscribed deal ever in Hong Kong, garnering more than $164 billion in investor demand.
The listing was the largest in Hong Kong since Alibaba's $13 billion IPO in 2019 and leaves Kuaishou with enough dry powder to remain competitive against China's most popular video service, Bytedance's Douyin.
Kuaishou has roughly 302 million daily active users (DAU), just over half of Douyin's 600 million as reported in August 2020, and both companies are scrambling to grow their user base.
"The reality of being online, particularly in China, is that you are forced to constantly reinvent yourself to stay relevant to customers and to monetize," said Tanner.
Part of this means finding fresh streams of revenue. The company derived more than two thirds of its revenues in the first half of 2020 from celebrity live streaming, according to the company prospectus, but the reliability of this income stream depends on fickle video personalities who often hop between streaming platforms.
Viewers send virtual gifts to their favorite hosts in the form of stickers that briefly flash on the screen and range in price from less than a dollar to more than $200.
The 45% cut that Kuaishou takes from these purchases accounted for 95% of its revenue in 2017 but fell to 62% over the first nine months ending in September 2020 as the pandemic tightened people's purse strings.
In contrast, Douyin, known as TikTok outside of China, generates the majority of revenue from companies advertising on the app and drew an estimated $16.2 billion in 2020 from ads on the live streaming service.
Kuaishou's dependency on everyday viewers reflects its intended audience and community-minded approach to business.
"[It] is definitely skewed towards lower tier consumers, more so than its direct competitor Douyin and other large platforms such as Ali, JD and WeChat," said Tanner.
"This segment has been elusive for many of the big tech companies as it presents the most growth and opportunities to diversify incomes as these areas grow wealthier and spend more online," he said.
If Kuaishou can harness the potential spending power of this demographic, it stands a chance at going head to head with Douyin.