By JIANG Jingling, YUAN Weiteng

On February 5, short-video platform Kuaishou made its debut on the Hong Kong Stock Exchange. Priced at HK$115 (US$15, 96 yuan) per share, the IPO will raise US$5.3 billion from a US$50 billion valuation.

The first major public offering in the short-video sector attracted over 1.4 million retail investors bidding for 1240 times the shares on offer, making it Hong Kong’s most oversubscribed IPO ever.

Even with such frenetic bidding, Kuaishou's performance on its debut day was still beyond the market's wildest imagination. It closed at HK$ 300, 160 percent higher than its offering price of HK$115. Its valuation reached US$ 170 billion, making Kuaishou the fifth Chinese Internet company. 

Behind these glitzy numbers, Kuaishou is not without its troubles, mainly brought by competition from Douyin. In less than eighteen months, the newcomer has overtaken Kuaishou on all fronts, prompting a shift in Kuaishou’s fundamental strategy. The IPO might have been stellar, but user data remains very much down-to-earth.

A new finger in the pie

Today with over 300 million DAU, Kuaishou began life ten years ago as Kuaishou GIF, an unambitious meme maker. The founder, CHENG Yixiao met SU Hua, a software engineer and AI enthusiast in 2013. The two immediately hit it off and the humble GIF workshop grew into what it is today, though for cryptic reasons best-known to themselves the pair maintain to this day that the platform is actually a “community for grassroots users” and not just a collection of tedious funny-cat videos.

Su describes his philosophy as “nudging attention away from the influential few to empower normal people.” At least in the early days, this could be seen in the platform’s design and operation. Its interface — a dense double-column layout — encouraged users to choose for themselves instead of being force-fed viral videos. The algorithms were seen as friendly to new content creators trying to build a following.

Without much marketing effort, DAU went from barely a million in 2014 to 40 million two years later disproportionately (at least in comparison to similar platforms) in lower-tier cities and rural areas. Content creators, be they urban fashionistas or chicken farmers, could interact meaningfully with their viewers.

Initially, this laissez-faire approach, with no advertising, was what made Kuaishou special. Neither Cheng nor Su were particularly keen on capitalizing on its huge popularity, certainly not directly from users. It was not until 2016 that the platform started to skim off a percentage from livestreaming hosts’ tips.

In 2016, Douyin, the Chinese version of TikTok owned by ByteDance, rocked up and the party began in earnest. Until then, Kuaishou had the marketplace more or less to itself. Goofy Douyin with its slick tricks to hook unsuspecting hosts and viewers didn’t seem like much of a threat and was welcomed to the merrymaking. Su showed little interest in the new arrival, and data analysts were unmoved, the consensus being that a new platform meant more pie for everyone. And all seemed well until Douyin’s huge appetite for pie became apparent and by 2018 the neophyte was gobbling up so much pie that Kuaishou was obliged to wake up and smell the coffee.

Nothing changed. Kuaishou fell further behind and by the end of 2018, the pie stopped growing. Almost everyone who was ever going to had already downloaded at least one short video app by then and if Kuaishou was going to get any pie at all, it was going to have to snatch it from the jaws of Douyin. The street party became a brawl.

In pursuit of 300 million DAU by last year’s Chinese New Year, Kuaishou sold out in almost every respect. The no-advertising policy swung round a full 180 degrees and the platform began to throw money at the problem. Advertising was everywhere, new users were offered all kinds of goodies. Skimming something off the top of streamers’ tips soon became raking in as much as possible, increasing from 8 billion in 2017 to 31 billion in 2019. Marketing and e-commerce moved center stage.

A massive 4 billion yuan was splashed on sponsoring the national broadcaster’s Chinese New Year gala and by February last year 300 million DAU had been obtained. Mission accomplished, Kuaishou proclaimed victory. But not for long.

A case of Douyinize or die?

Kuaishou couldn’t keep up the pace. Fifty million DAU disappeared within a month after the New Year feast, and signing up A-lister didn’t do much to stem the exodus. DAU numbers stagnated, a rather dire outcome considering the company spent an astonishing 20 billion yuan.

Worse yet, the company was “engulfed in managerial chaos.” In online forums, Kuaishou employees described the office environment as a mess of petty turf wars, subterfuge and secrecy. In June, a senior manager published an open letter describing a convoluted corporate structure, chaotic communication channels and a culture of blame. Kuaishou clearly needed a rethink.

From the inside out, the platform has taken on many of the characteristics of its nemesis Douyin. Even the front end looks like Douyin. Algorithms are now ruthlessly steering users to the anointed content of the moment.

The changes have been largely welcomed by analysts and investors who are keen for Kuaishou to “Douyinize” since their competitor’s strategies are tried and tested. On the basis of pure data, Douyin is far ahead. The Kuaishou prospectus has DAU hovering at below 300 billion, less than half the Douyin total.

To justify its gigantic valuation, Kuaishou has a long hard road ahead. Its 2021 wish list, as reported in an influential business blog, includes winning a bigger share of Douyin’s core markets, mainly in south China, as well as expanding its footprint in non-video businesses such as e-commerce and online education, both extremely ambitious tasks.

Su has acknowledged the severity of the exposed situation, and promised improvements, further complicating a major restructure that has been on-going since 2019. The changes were meant to prepare for the battle to come, but the word is that they have caused nothing but disgruntlement and friction.

The IPO, albeit no magic fix to the current malaise, will inject capital into the cash-strapped Kuaishou. Disclosed data shows working capital to be tight, and the company is burning cash faster than ever. Rumors of an encroaching Douyin IPO are rampant.

With both giants soon to be flush with cash, the carnage may not have even begun.