Kuaishou Technology, the operator of the second most popular short-video platform after Douyin, saw its stock tumble as much as 11.6% on Tuesday after the company reported a 7.3 billion yuan ($1.14 billion) loss the previous day.
The Tencent-backed company unveiled its financial results for the first quarter on Monday, with revenue climbing 36.6% to 17.0 billion yuan ($2.65 billion) from 12.5 billion yuan ($1.95 billion) a year earlier. Among the total revenues, sales from its live-streaming business fell 20%, accelerating from a 7% drop in the prior quarter. Kuaishou said that this is partially due to China’s relaxation of lockdown measures has steered people away from online social and entertainment activities.
Users can tip live-streaming hosts by purchasing virtual gifts on the platforms and sending them to content creators. Platforms will take a cut of the money paid by users, which is usually a significant part of their revenues. Four years ago, Kuaishou earned 95% of its revenues this way but in the first three months of this year, sales of virtual gifts only contributed 42.6% of its total revenue.
The Beijing-based start-up’s efforts to diversify revenue streams have helped it cushion a fall in its core live-streaming revenues. Online advertising sales grew by 161.5% year-on-year to 8.6 billion yuan ($1.34 billion) and accounted for 50.3% of Kuaishou’s total revenues during the quarter, becoming the company’s biggest earnings driver. Revenues from other services including e-commerce showed the strongest sales growth, rising 589.1% year-on-year to 1.2 billion yuan ($187.3 million) after the firm recorded gross merchandise value of 118.6 billion yuan ($18.5 billion), representing a year-on-year increase of 219.8%.
Kuaishou posted 57.75 billion yuan ($9 billion) in net loss, while its operating loss expanded to 7.29 billion yuan ($1.14 billion) from 5 billion yuan ($780.4 million) a year earlier. The company primarily attributed the loss to a surge in sales and marketing expenses, which jumped 44% in the quarter due to growing promotional activities and accounted for roughly 69% of its revenue. Spending on research and development also tripled as the short-video giant boosted hiring to focus on advanced technologies like artificial intelligence, Bloomberg reported.
The earnings figures prompted analysts at Wall Street banks to cut their share price targets. Analysts at Morgan Stanley said that Kuaishou’s increasing investment, the larger expected loss for the year and weaker live-streaming revenue led to this, the Financial Times reported.
The world’s second-largest short video platform also looks to acquire users overseas with apps like Kwai and Snack Video. Mainly focusing on South America and Southeast Asia, the company had more than 150 million users outside China in April, up from over 100 million in the first quarter, according to its earnings report.
Kuaishou’s earnings figures were made public just as the Chinese government tightened its grip on the country’s rapidly-growing internet sector. The company was among 34 leading Chinese tech firms to be ordered to comply with anti-monopoly rules in April and was recently criticized by officials for excessive and illegal personal data collection.
Earlier this year, regulators announced new rules targeting the live-streaming e-commerce industry, which directed platforms to establish risk management systems to guard against poor quality products and misleading advertising. Internet platforms were also required to put a cap on the number of digital tips that users give to live-streaming content providers.
Kuaishou’s Hong Kong-listed stocks fell to HK$205.2 ($26.43) per share on Tuesday, wiping out as much as $14 billion in the company’s market capitalization. The company launched a blockbuster Hong Kong IPO in February and raised more than $5.4 billion, making it the world’s largest IPO since the coronavirus pandemic began.