#Zhi #KryptonCrazy #fast #hand #declining #leek
Edit | Zheng Huaizhou
The market value of Kuaishou broke one trillion on the first day of listing
On February 5, Kuaishou was listed on the main board of the Hong Kong Stock Exchange at an issue price of 115 Hong Kong dollars per share, and the opening price reached 338 Hong Kong dollars per share. In the same day, it rushed to 345 Hong Kong dollars per share, which was higher than the issue price. The price has risen by 200%, continuing the hot market in a new stage.
Figure 1: K-line chart since Kuaishou went public, as of February 16 Source: wind, 36kr
Due to the large number of new participants, the unsuccessful runners started panic buying because of their demand, which increased market volatility. Since Kuaishou was listed and traded, the transaction price has always maintained a high level, and the lowest has only reached 283 Hong Kong dollars per share. On February 16, the first trading day after the Spring Festival, it closed at HK$403 per share, which reflected a market value of HK$1.68 trillion, a record high.
As the first short video stock, the fast-hand performance with a trillion market value is not so optimistic. Not only has it not been profitable during the reporting period, but as of 2020Q3, it even has a huge loss of 14.298 billion US dollars.
The enthusiasm of the capital market runs counter to the slightly bleak fundamentals of the company. However, judging from the traditional logic of the capital market towards Internet giants, it seems that immediate performance has never been the focus of attention.
Usually, under optimism, the prospects of the Internet industry, the company’s own development prospects and moats, and the long-term performance growth expectations brought about by it, are the core aspects of the capital market, and the performance of Kuaishou is also hidden Mystery.
But what does this mean for the secondary market investors participating in this transaction?
Traffic growth is one of the core logic of Kuaishou
The short video industry is a branch of the Internet, and traffic dividends are very important to all players in this track. The biggest imagination in the past few years is the growth of traffic in the Internet industry itself.
According to the data of iResearch Consulting, in 2019, my country’s mobile Internet users reached 873 million, making it the world’s largest Internet user group, accounting for about 23% of the global Internet users. By 2025, the number of Internet users in my country may exceed 1.1 billion, and the penetration rate will also reach 78.5%.
Figure 2: China Mobile Internet User Number and Penetration Rate Source: iResearch & Kuaishou Prospectus, compiled by 36kr
As the penetration rate approaches the ceiling, user growth is bound to decline. In 2019, the growth rate of the number of Internet users is still 6.85%. Considering the catalysis of the logic of the epidemic in 2020, the growth rate will jump slightly. However, by 2025, as the expected traffic growth peaks, the growth rate of the number of users will drop to only about 2.5%.
Let’s look at the short video and live broadcast industry where Kuaishou is located, and its position and prospects in the entire Internet industry.ToPercentage of daily average online timeAs an indicator, in 2019, the average daily online time of Internet users in my country was 4.35 hours, and short videos and live broadcasts accounted for about 15.6%. By 2025, the average daily online time will be extended to 5.73 hours, and the proportion of short videos and live broadcasts will increase to 25.1%.
Figure 3: Average daily usage time of Chinese Internet users classified by core application functions. Source: iResearch & Kuaishou prospectus, compiled by 36kr
According to this forecast, in the next five years, the growth of short video and live broadcast traffic will not only rely on the natural growth of the Internet itself, but internal structural adjustments will also bring considerable incremental space to the short video and live broadcast industry.
As one of the leaders in short video and live broadcasting, Kuaishou will certainly benefit directly from this. however,The peak of traffic in the next 5 years will become a problem that all Internet giants must face directly.
Traffic growth tends to peak, commercialization is the biggest imagination for Kuaishou
It must be noted that the conversion from traffic to income requires specific means to realize cash. Kuaishou, which started with short videos, is not the core of profitability. This can be known from the company’s business development history.
Figure 4: Kuaishou business development timeline Source: Kuaishou official website & public information, organized by 36kr
According to the timeline of the company’s business development, initially in 2011, when the Doutu culture prevailed and Kuaishou was also called GIF Kuaishou, it mainly provided the function of creating and sharing original GIF animations. This formed the prototype of short videos, which can be said to be traffic accumulation. The beginning.
In 2012, the short video was transformed, and then in 2013, the short video social function was officially launched. As a result, Kuaishou exploded the network, and the accumulation of traffic was significantly accelerated.
In 2016, live broadcast was launched. By the end of 2017, Kuaishou became the world’s largest single live broadcast platform. Live broadcast can be regarded as the beginning of the realization of fast-handed traffic, and the popular live broadcast business also forms a positive feedback spiral with traffic accumulation, which strengthens each other.
In 2018, the e-commerce business went online. By 2019, in terms of GMV, Kuaishou has become the world’s second largest live e-commerce platform, reaching 59.6 billion yuan, and the GMV of 2020H1 will exceed the 100 billion mark.
Figure 5: Kuaishou e-commerce GMV, an increase of 1,000 times in 2 years Source: “2020 Kuaishou E-commerce Ecological Report”, 36kr
Online marketing with advertising as its core content, as the most traditional monetization method, has quickly become an important component of the company’s revenue with the expansion of Kuaishou’s influence. As of 2020Q3, online sales revenue from advertising accounted for 32.8% of total revenue.
It is precisely based on this business structure that Kuaishou’s financial reports in recent years mainly consist of three major components, namely live broadcast, online marketing and others. This other includes income contributed by e-commerce, online games and other value-added services.
Figure 6: Changes in the income structure of Kuaishou, 2018 and 2020Q3 Source: wind, compiled by 36kr
The monetization method of live broadcasts is mainly through rewarding virtual items sold by the anchors. In the first half of 2020, Kuaishou has 1 billion live broadcasts, bringing in revenue of 2.45 billion US dollars. However, judging from the revenue data during the reporting period, the revenue growth brought about by traffic realization is very obvious, but the proportion of live broadcast revenue is obviously declining.
Figure 7: The proportion of Kuaishou’s live broadcast revenue has declined year by year. Source: wind, compiled by 36kr
The appearance of this structural change is mainly caused by three aspects. First, when the penetration rate tends to peak, the traffic dividend is not so obvious. After the live broadcast income reaches a certain magnitude, its growth rate begins to slow down.
Second, with the rapid growth of GMV of live broadcast e-commerce and changes in live broadcast e-commerce diversion rules, the proportion of live broadcast e-commerce in the platform’s live broadcast business is increasing. By 2020H1, the proportion of e-commerce live broadcast DAU has exceeded In half, this change directly led to a slowdown in the growth rate of monthly paying subscribers for live broadcast, which affected the growth of live broadcast revenue.
Third, when the growth rate of live broadcast revenue started to slow down due to the above factors, the revenue of online marketing centered on advertising increased rapidly, directly changing the revenue structure of Kuaishou. In 2017, online marketing revenue was only 390 million yuan, and by 2020Q3 it has surged to 13.34 billion yuan.
In the future, the peak traffic growth will inevitably lead to a slowdown in the growth of live broadcast revenue. However, the future of Kuaishou is still optimistic by the market. This judgment is based on the fact that Kuaishou’s commercialization will continue through online marketing and live broadcast e-commerce. Among them, with the increasing influence, online marketing with advertising as the core still has a lot of room for imagination.
“Old Iron Economy” is the largest moat in Kuaishou
Since we are optimistic about the future of Kuaishou, from the perspective of competing products, Kuaishou is often compared with Douyin. In terms of business form, both are a combination of live broadcast + short video. However, there are obvious differences in the tone of the works, which distinguishes the user groups.
Unlike Douyin, which feeds a large number of show actors, Kuaishou’s anchors are more grassroots, and the content is more ordinary people sharing common things, so the social attributes are stronger, and the “old iron culture” has become a typical Kuaishou. symbol.In other words, Kuaishou pays more attention to private domain traffic in terms of business strategy.
Paying attention to private domain traffic has two benefits. First, due to the prominent social attributes, fans interact with the anchor more and fans are more sticky; second, the significance of paying attention to private domain traffic lies in paying more attention to individual value and being better at public domain traffic For Douyin, the individual value is submerged in the system algorithm.
Therefore, Kuaishou, who value private domain traffic, has more prominent individual value and higher fan stickiness. Based on this connotation, it has built a natural moat for the realization of traffic in the next step.
A typical example is to let the “old irons” come to bring goods to realize, stronger fan stickiness means a deeper trust relationship, which lays a good foundation for the next commodity transaction. The positive interaction after bringing the goods will in turn strengthen the personal value of the anchor, thus forming a positive feedback spiral.
According to the data, in the operating cost of the company in 2020Q3, the revenue share and related taxes for the anchor totaled 14.303 billion yuan, more than half of the operating cost.
Kuaishou’s generosity to the “old irons” will attract more “old irons” to settle in, and the growth of users will be more solid, and it will also create considerable space for further realization.
Figure 8: Kuaishou DAU, MAU and user usage time have steadily increased. Source: Kuaishou prospectus, compiled by 36kr
As for Kuaishou’s huge loss of USD 14.298 billion in 2020Q3, this is where the first article mentioned the hidden mystery. The net profit of Dismantling Kuaishou will find that the current gross profit is US$2.25 billion, and the continuous investment in marketing and promotion has resulted in marketing expenses of US$2.91 billion. In addition, R&D expenses, management expenses and other period expenses are superimposed, and operating profit is US$1.313 billion. In fact, it shows that the distance between the company’s current model and performance is not far away.
The most eye-catching part is the change in the fair value of the $13.091 billion convertible redeemable preferred stock. This change in the fair value of this part of the fair value is included in the income statement rather than the actual loss due to accounting treatment. The substantial change in this subject is mainly related to the company’s previous financing activities.
Therefore, the focus of the future performance of Kuaishou depends on whether the current model can deliver performance after the continuous promotion of the channel. There is no need to worry too much about changes in the fair value of convertible redeemable preferred stocks.
How to value Kuaishou?
For Internet companies that have not yet made a profit, the market usually uses the PS multiple method to give valuations, which can avoid the situation of negative PE.
For Kuaishou, the current performance expectations have not been fulfilled, and the PS data directly given by the trading software has limited reference value. Therefore, some assumptions can be appropriately made to give a relatively fair valuation for Kuaishou.
According to the pace of the company’s business development and revenue structure, it is expected that the proportion of advertising revenue will continue to increase, so gross profit margin will continue to increase, and the adjusted net profit margin level will therefore be improved.
In terms of core financial data, as of 2020Q3, the overall revenue growth rate of Kuaishou was 49.18%, among which the revenue growth rates of the two pillar businesses, live broadcast and online marketing were 10.41% and 212.67%, respectively.
In anticipation of peak traffic growth, it is cautious to assume that in 2021, the growth rate of live broadcast revenue will drop to 7% and that of online marketing will drop to 100%. Other income (including e-commerce, online games, etc.) after the base increases, it is optimistically estimated that its growth rate will be 100%.
Then, it is predicted that the scale of Kuaishou’s operating income in 2021 will reach 86.616 billion yuan, and the growth rate of the mapping is about 45.99%, which is relatively reasonable compared to the level of 2020Q3.
At present, the market value of Kuaishou is about 1.4 trillion yuan (1.68 trillion Hong Kong dollars). If the market value of 1.1 trillion is used cautiously to predict the PS in 2021, the result is 12.7 times, which is lower in the middle ranking among comparable companies, which is relatively obvious. Expensive.
The reason why the valuation forecast we give is more expensive than some research institutions is that after Kuaishou went public, the valuation expansion caused by the rocket-like rise in stock prices was too fierce, which is obviously negative for secondary transactions.
In the long run, even if our forecast is cautious, Kuaishou’s revenue growth rate in 2021 will still be as high as 45%, and high-margin advertising revenue will account for a higher proportion by then, and the improvement of net profit margin is worth looking forward to.
Therefore, from the perspective of business model, the company’s long-term performance growth is optimistic. However, there is a layer of valuation between good companies and good stocks. Even if the current valuation is digested with higher performance growth expectations, it will still take a long time.
In fact, this situation is very similar to the recently listed Bubble Mart. The issue price of the latter is only HK$38.5/share, which has risen to a maximum of HK$96.45/share after listing, which is an increase of 150.5% compared to the issue price.
The valuation expansion caused by the skyrocketing stock price is very obvious. PS is also ranked first in the list of comparable companies in Table 1. The investment value is geometric, and readers can take a closer look.
Taking into account the overseas liquidity spillover, Hong Kong stocks, as a market with fully circulating capital, will inevitably expand their valuations driven by liquidity. The current capital market benefits from loose liquidity, and the superposition of scarcity premiums for new youth and new economic companies has pushed this crazy capital feast to another climax, that is, the primary market will eventually take all the advantages. The secondary market, as the primary market, can only play a role in taking over the market. There is not much room for arbitrage for new participants.
For example, when Bubble Mart went public, many investors relied on their longing for “addictive” companies to enter the market to take over, but in the end it turned into a suffering of wide shocks. It is true that the overestimation of the market is reasonable after all, but in the end, performance is needed to fulfill expectations, otherwise there is bound to be a painful correction of mean return.
While creating the myth of trillions of market value, Kuaishou’s current unpleasant margin of safety will inevitably leave the leeks in the secondary market in throat. Although, from the perspective of the company’s fundamentals, the future is still promising, but when it comes to the transaction level, it may be necessary to pay more attention to when its performance can absorb the current high valuation, and at the same time be careful about the end of the overseas liquidity spillover bonus period. .
Table 1: Kuaishou and comparable companies valuation PS, as of the close of February 9th Source: wind, compiled by 36kr