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China's Money Burning Video Sector: How Kuaishou Misplaced $ 1 Billion In 6 Months

For months there have been rumors that ByteDance goes public separately with TikTok and Douyin. Just last night, Bloomberg reported that ByteDance is targeting a pre-IPO round of $ 2 billion at a staggering valuation of $ 180 billion.

Before that happens, ByteDance's Chinese rival Kuaishou filed for an IPO in Hong Kong on Thursday night. The prospectus sheds light on a race where both growth and costs are astronomical.

Kuaishou was started in 2011 by a former Google engineer to share GIFs. It has become a nemesis of Douyin, TikTok's sister in China. The company, owned 21.5% by Tencent, recorded a net loss of 6.8 billion yuan ($ 1 billion) for the first six months of 2020, while its operating loss was 7.57 billion yuan. For the same period last year, the company posted an operating profit of 1.1 billion yuan.

The increase was partly due to the company's aggressive promotion of its lite version, Kuaishou Express, which is tailored to China's less tech-savvy demographics. In contrast to ByteDance, Kuaishou has had limited success overseas and is relying on continuous domestic growth.

Selling and marketing expenses increased 354.1% from 3 billion yuan in the first half of 2019 to 13.7 billion yuan in the first half of this year. But the splendor seemed to have paid off: the Lite app won 100 million DAUs within a year. It's a pay-to-play game.

The main app, Kuaishou itself, reached 302 million daily users in June, who spent more than 85 minutes a day on the app, watching clips and live sessions. For comparison: Douyin exceeded 400 million DAUs in January.

Although Kuaishou is known as a "short video app," Kuaishou generates most of its revenue – 68.5% in the first half – from live streaming, which allows audiences to broadcast virtual hosts at prices between 1 and 2,000 yuan. Other monetization options include advertising, which accounted for 28% of sales, as well as less important sources such as e-commerce and games.

Douyin, on the other hand, generated around 67% of its advertising revenue last year, a source previously told TechCrunch, while live streaming made up 17%.

The sales composition reflects the main application of the apps. Kuaishou often prides itself on user dedication. In fact, over a quarter of its 776 million monthly users are creators themselves. That makes Kuaishou more of a social app, where viewers and creators often interact through live streaming and giving.

Douyin, with algorithms favoring premium content, is acting more like some form of media, as some Chinese venture capitalists have observed, making it a target for ads to run.

In terms of revenue size, Kuaishou grossed 39.1 billion yuan last year, about a third of what ByteDance did last year. But keep in mind that ByteDance has another cash cow: its news and information aggregator Jinri Toutiao.

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