Shares of China’s main competitor ByteDance collapsed after the company’s losses grew on growing indications that users in the country are spending less on its livestreaming services.
Kuaishou’s short video app faces stiff competition from ByteDance’s Douyin, the Chinese version of TikTok, and online shopping groups like Alibaba and Pinduoduo that are also pushing to sell products through livestreaming.
The company’s share fell as much as 11.3 per cent in Hong Kong on Tuesday, cutting up to $ 14bn in market capitalization in Kuaishou. The initial public offering of Kuaishou, supported by Chinese internet group Tencent, raised more than $ 5.4bn in February.
Kuaishou’s results come as Beijing expands its scrutiny of the country’s technology sector. The company is one of nearly three dozen tech groups reported to fix counter-competition deeds. Regulators have also launched new rules to control it livestreaming content and limited some tipping to video hosts.
Kuaishou sees a significant share of its revenue by taking the money paid by users to shower small gifts with livestreaming hosts, such as virtual beer stickers (Rmb1.5) or “golden dragons” (Rmb1,400).
Kuaishou users every month
Four years ago, it earned 95 per cent of revenues this way but in the three months to March, such consumer spending fell 20 per cent year on year. Sales of virtual gifts accounted for only 42.6 percent of total revenue for the quarter, according to Kuaishou’s earnings report released Monday.
The growth of the company’s advertising business helped offset the decline, with revenue in this segment up 161 percent year-over-year. Advertising provided 50.3 percent of total revenue during the quarter.
Kuaishou’s total revenue rose 36.6 per cent year-on-year to Rmb17bn but sales for all three of its business lines are at the bottom of Bernstein’s research group. The miss is even greater for the line of business that holds Kuaishou’s ecommerce business.
The company’s operating loss widened to Rmb7.3bn ($ 1.14bn) for the quarter, from Rmb5bn a year earlier.
Earnings numbers prompted Wall Street banks including Morgan Stanley to cut their price targets for Kuaishou. Morgan Stanley analysts say the rise in investment in Kuaishou, more expected losses for the year and less weak livestreaming earnings have contributed to the decline in its target price.
Livestreaming ecommerce, where online users host products, is on the rise in China because the Covid-19 pandemic means shoppers stay at home and buy their smartphones.
But the competition on Douyin, Alibaba, Pinduoduo and JD.com is fierce.
“We continue to be more cautious about Kuaishou’s liveish growth in e-commerce,” Bernstein analysts wrote.
Bernstein also pointed to Kuaishou’s sales and marketing costs, which accounted for 69 percent of revenue. The research team estimated that the amount paid by Kuaishou to acquire each new user increased to Rmb65 per user over time, from Rmb55 in the fourth quarter.
Kuaishou said it’s an investment to improve the user base and engagement. Monthly users of its apps hit 519.8m during the quarter, up from 495.0m a year earlier.