Post-90s entrepreneurs sprinted to the first share of sports technology, keep lost 696 million yuan in the first three quarters of last year

On the evening of February 25, Keep submitted a listing application to the Hong Kong Stock Exchange to sprint to the first share of Sports Technology. The co-sponsors are Goldman Sachs and CICC. Keep said the fundraising will be used for technology and product innovation, fitness content innovation and development, marketing and publicity.

Keep founder and CEO Wang Ning is a "post-90s" entrepreneur, he is a sports enthusiast, but also a weight loss success, near the end of college, he once lost from 180 pounds to 130 pounds. In the summer of 2014, Wang Ning pulled up a team of old classmates and ape question bank colleagues to start writing code in a sunless conference room in his friend's outward-facing SOHO.

In February 2015, Keep was officially launched, and on the same day, Wang Ning wrote down his entrepreneurial vision in the WeChat circle of friends: "Let 100% of people be able to work out as high-quality as 10% of fitness experts." Starting from providing free fitness teaching and creating an Internet sports community in the early days, Keep's business has now expanded to e-commerce, customized and paid courses, smart fitness equipment, supporting sports products and opened an offline physical store Keepland.

Before the IPO, Wang Ning held 18.61%, Peng Wei held 2.26%, Liu Dong held 1.18%, GGV held 16.14%, and SoftBank held 10.39%.

From the performance point of view, the prospectus shows that in the first nine months of 2019, 2020 and 2021, Keep's total revenue was RMB663 million, RMB1.107 billion and RMB1.159 billion, respectively, while gross profit was RMB273 million, RMB499 million and RMB494 million were recorded in the same period.

In terms of business model, Keep's current revenue mainly comes from membership subscriptions and online paid content, private labels, and advertising and other services. Almost half of Keep's revenue comes from private label products, and the business achieved revenue of 396 million yuan, 637 million yuan and 639 million yuan in 2019, 2020 and the first three quarters of 2021, respectively. Membership and online paid content revenue was $151 million, $338 million and $380 million, respectively, while revenue from advertising and other services was $116 million, $132 million and $139 million, respectively.

Sales and marketing expenses account for the largest portion of Keep's operating expenses. In 2019 and 2020, Keep's sales and marketing expenses were 296 million and 302 million, respectively, but by the first nine months of 2021, this expense soared to 818 million, accounting for more than 70% of the revenue in the same period. Keep said in the prospectus that this is due to the company's strategic decision to increase spending on user acquisition and branding, and as a result of these increased efforts, the user base and membership penetration have grown. But going forward, how to evaluate the effectiveness of promotional activities and marketing spending is still a test for Keep.

In terms of the number of users, in 2020 and 2021, Keep's average monthly active users were 29.7 million and 34.4 million, respectively, while the average monthly subscription members were 1.9 million and 3.3 million in the same period, and its membership penetration rate increased from 6.4% in 2020 to 9.5% in 2021.

In terms of R&D investment, Keep spent 194 million, 168 million and 247 million in 2019, 2020 and the first nine months of 2021, respectively.

In 2019 and 2020, Keep's adjusted net loss was $366 million and $106 million, respectively. For the nine months ended September 30, 2021, the adjusted net loss was $696 million. In addition, due to changes in the fair value of preferred stock, Keep's annual loss increased from RMB730 million in 2019 to RMB2.2 billion in 2020, recording a loss of RMB2.5 billion for the nine months ended September 30, 2021.

In terms of model, the industry often benchmarks Keep with Peloton, the first smart fitness stock listed on the NASDAQ in September 2019. Especially in 2020, under the new crown pneumonia epidemic, home has become the norm, benefiting from the home economy, home office and fitness application scenarios have ushered in a big outbreak in Peloton, the price per share soared from $17.70 to the highest period of $167.42, and the market value soared to $50 billion (about 310 billion yuan) at the end of 2020. But starting in 2021, Peloton's stock price can be seen to fall rapidly, and this year it has fallen to the bottom, which has shrunk by 80% compared with the peak.

Peloton's market value shrinkage is largely due to blind optimism about the market, irrational expansion, and rising operating costs, such as purchasing factories, building self-built output parks, expanding self-operated supply chains, and acquiring Precor, the world's second largest fitness equipment manufacturer, with the normalization of the epidemic, many fitness users have returned to offline. These factors have also led to poor performance, a large number of layoffs, the resignation of senior executives, and the rumors of being acquired.

Analysts believe that in the face of internal and external difficulties, Peloton's rise and fall is inseparable from several points: whether it can continue to create attractive content, services and hardware products added value, and how to improve user penetration and retention. The same is true for Keep, especially as it has significantly ramped up its marketing efforts over the past year to acquire more users.

According to the China Insight Consulting Report, China's fitness population will be 300 million in 2021 and is expected to reach 420 million by 2026. In 2021, the penetration rate of online fitness population in China will reach 45.5%, compared with 67.9% in the United States. At the same time, the average annual expenditure of China's fitness population in 2021 is 2596 yuan per person, far lower than the 14268 yuan in the United States, showing growth potential.

Thanks to the increase in Internet penetration and the digitization of the fitness industry, China's online fitness market has been growing rapidly. At the same time, there are not a few online fitness outlets that spawn fitness apps, which means that the external environment also has no small challenges for Keep.

On the one hand, from the beginning of its inception, the community has always been the main position of Keep, in this field, in addition to similar competitors, its competitors also include platforms such as B station, Little Red Book, Douyin and so on, which also have great attraction and influence for fitness experts. On the other hand, in the field of smart fitness hardware, not only such as technology sports startups such as Wild Beast and FREEBEAT have obtained financing, but hardware giants such as Apple, Huawei, and Xiaomi have stepped in. At present, the practice of giants is often to occupy the entrance of smart fitness through hardware, accumulate user data, and build a larger scene ecology.

In addition, Keep's offline business and operations have also been adversely affected by the epidemic, which Keep mentioned in the risk factors. Offline, Keepland also faces competition from offline stores including Leke and Super Orangutan.