Author l Dazhao
Keep walked to the door of the IPO.
A few days ago, the fitness technology company Keep officially submitted a prospectus to the Hong Kong Stock Exchange for listing on the main board.
According to the data, Keep was founded in 2014, and since its inception, Keep has completed 8 rounds of financing, totaling about 600 million US dollars. Among the shareholders of previous rounds of financing, there are many top institutions such as SoftBank Vision Fund, Hillhouse Capital, Tencent, GGV Jiyuan Capital, Wuyuan Capital and Bertelsmann.
Although there are many capital bigwigs behind the platform, the "common disease" of vertical APP to find user pain points but difficult to do also appears in Keep.
In the first three quarters of 2021, keep the net cash outflow from operating activities was 756 million, and at this rate of spending, Keep, which now has only 1.6 billion cash on its books, may only be able to carry for about two years.
Moreover, in the wrapping of capital and flow, Keep has been facing the problem of monetization, and even once fell into the storm of layoffs. Even if it can go to Hong Kong to ring the bell as desired and become the "first stock of sports technology" in Hong Kong stocks, there are many hidden dangers behind it that are also worth investors' deep thinking.
Heavy money "buy" monthly live
Xiong Xiaoge, global chairman of IDG Capital, asserted as early as 2018 that the era of Internet entrepreneurship relying on burning money to compete for traffic has passed. But to this day, Keep is still running by burning money.
When Keep was first established in 2014, under the premise that the products were not online, it got an angel investment of 3 million yuan from Zehou Capital;
In April of the following year, the app was launched only two months ago, and it received a $5 million Series A financing from Intime Capital and Bertelsmann Asia Investment Fund;
The most recent round was a $360 million Series F funding round completed in January 2021, and after completing the Series F round, Keep's valuation has reached $2 billion.
As of now, keep, which has been established for 8 years, has completed 8 rounds of financing, with an average annual pace of financing.
Source: Qi cha cha
Despite getting so much money from investors, Keep is still losing money.
The prospectus shows that Keep has been in the red for three consecutive years. In the first three quarters of 2019-2021, Keep's adjusted net loss was $366 million, $106 million and $696 million, respectively.
Most of this lost money is spent on marketing, and the prospectus shows:
From 2019 to the first three quarters of 2021, Keep's sales and marketing expenses reached $296 million, $301 million and $818 million, accounting for 44.6%, 27.3% and 70.6% of total revenue, respectively.
However, "burning money" cannot form core competitiveness and cannot establish its own barriers.
From the user data, the average monthly active users of Keep during the reporting period were about 21.77 million, 29.73 million and 34.36 million, showing an upward trend.
In exchange for such user growth, Keep can be said to have spent a lot of money.
In 2021, for example, Keep's average monthly active users increased by about 15% year-on-year during the year, while sales and marketing expenses in 2021 increased by about 172% year-on-year.
However, Keep's membership payment rate is not high, in the first three quarters of 2021, Keep's average monthly active is 36.16 million, and the average monthly subscription membership is only 3.3 million, accounting for only 9%.
And these "bought" monthly jobs, loyalty is not high.
According to the prospectus, keep's 2020 core users (monthly active users who completed at least four days of exercise courses in a month) have an average 12th-month retention rate of 49.3%, while senior Peloton disclosed in its Q4 2021 shareholder letter that its 12-month retention rate was as high as 92%.
Awkward "carrying goods"
Keep's business model can be summarized as "content + e-commerce".
Its revenue is mainly composed of three parts, namely private label products, membership subscriptions and online paid content, advertising and other services, of which private label products are currently the most important source of revenue for Keep, accounting for more than 50% of the total revenue.
Source: Guosen Securities
Keep's own brand fitness products on sale include Keep smart bicycles, Keep bracelets, smart scales and treadmills, and supporting sports products include fitness equipment, clothing and food.
Taking the first three quarters of 2021 as an example, in the first three quarters, Keep's own brand products achieved operating income of 639 million yuan, with an average monthly DTC paying user of 377,000, which can bring an average of 188 yuan per month per paying user.
However, the cost of obtaining such a paying user is much higher than 188 yuan, and in 2021, Keep spends an average of 240 yuan on sales and marketing expenses per month per paying user, and "not enough to make ends meet" has become one of the main reasons for Keep's loss.
On the other hand, mobile phone manufacturers including Xiaomi, Huawei, OPPO, etc., technology giants such as Baidu and iFLYTEK, and game peripherals such as Nintendo Switch are all aimed at the smart hardware fitness industry, and each has a different field of "small explosive" products.
Taking Xiaomi as an example, its Xiaomi bracelet 6 has exceeded one million in sales in only 1 month, and the cumulative global sales of Xiaomi's entire series of bracelets have exceeded 130 million. The cumulative sales of Keep's own bracelets since its inception are only about 1.2 million, which is still a long way from the head of the industry market share.
In terms of paid content:
As of December 31, 2021, there are more than 10,000 fitness recordings on the Keep platform, of which about 2,600 are developed in-house, and about 7,600 are recorded by and licensed from other fitness professionals and fitness content providers (2,900 at the end of 2020).
For Keep, this type of fitness content can be said to be the foundation of the company's creation of user stickiness, but unfortunately, fitness content (courses) is not exclusive to Keep.
According to the "2020 B Station User Fitness Group Portrait" report, more than 5.7 million people watch fitness videos at B station every day, of which users aged 19-30 account for nearly 70%.
To this end, Station B has specially opened a "sports" channel on the home page, and placed the sub-classification of "fitness" at the top, and its position on the page is even better than common sports such as basketball, football, and racing.
The "2021 B Station Creator Ecology Report" shows that the scale of B station sports creators increased by 76% that year.
Moreover, with the help of the national sports boom brought about by the Winter Olympics, Internet products such as Douyin, Kuaishou, and Weibo will also take sports and fitness as a new direction for their expansion.
On December 28, 2021, Douyin launched the short video fitness action "DOU Movement Plan", which aims to call on individuals and institutions with sports content creation capabilities to create and publish sports videos based on Douyin, record fitness daily life, and share a scientific and healthy lifestyle. In order to motivate creation, Douyin launched topic challenges such as "Douyin Sports Team" and "National Fitness".
Weibo CEO Wang Gaofei said on the Q4 earnings call that in the fourth quarter, we greatly enriched the planning community category, strengthened the investment in community operations in the fields of games, sports, and campuses, and the average daily release volume of Weibo users has accounted for nearly 20% of the whole platform.
More centrally, the sports and fitness content provided by the above platforms is mostly free, and UP owners and Internet celebrities with a certain appeal even have their own brands, which will undoubtedly further weaken Keep's competitiveness in the fitness market.
The past does not forget the teacher of the future
When talking about Keep, we always compare the fitness population data between China and the United States.
According to the China Insight Consulting report, the penetration rate of the fitness population in China in 2021 is 21.5%, 48.2% in the United States, and 41.2% in Europe. China's gym membership penetration rate in 2021 was 3.2%, far lower than the 23.5% in the United States and 9.5% in Europe. China's fitness population penetration rate is expected to reach 29.3% in 2026.
In 2021, the average annual expenditure of China's fitness population was RMB2,596 per person, which was lower than the average annual expenditure of RMB14,268 per person in the United States, showing great growth potential. It is expected that the market size of China's fitness market will increase from RMB786.6 billion in 2021 to RMB1,479.3 billion in 2026, with a compound annual growth rate of 13.5%.
These two sets of data are often used to illustrate the huge potential of the domestic fitness market and the future development space.
But in fact, the Internet fitness service platform in the United States has also experienced many rounds of fighting, with the arrival of the epidemic, the entire industry reshuffle intensified, some small and medium-sized platforms closed, and most of the rest are difficult to escape the fate of "big fish eat small fish".
According to Kismart, in the U.S. online fitness industry:
Keelo charges for subscriptions, and users pay for a personalized workout plan;
GainFitness company through the combination of offline personal training courses and online APP fitness videos, the main income is still from the gym income;
Peloton is the largest, dominated by hardware revenue, supplemented by subscription revenue;
In addition, iFIT develops fitness equipment and sports equipment and services that connect subscriptions through various brands, and is also dominated by hardware revenue.
Founded in 2012, Peloton is the world's largest interactive fitness platform, positioned as a fitness technology company with home fitness as its main business, with more than 1.4 million members, including spinning bikes, treadmills and content subscription services, priced at $1995, $3995 and $39/month, respectively.
As of June 30, 2021, the company's total revenue for fiscal 2021 reached $4.022 billion, of which hardware revenue contributed more than 78%. Through high-end hardware, sophisticated content, and social additional rich experience, user stickiness is high, and the average net monthly fitness user churn rate is less than 1%.
If you look at it from this point of view, the keep model is very similar to Peloton, which is why we compared the retention of the two above.
However, although Peloton is the world's first, after experiencing rapid growth under the epidemic in 2020, the growth rate will gradually slow down in 2021. Since 2021, the company's quarterly revenue growth rate has gradually slowed down, and the first quarter of fiscal 2022 has only increased by 6.24% year-on-year, which is far from the growth rate of 232.41% in the same period of 2021, while the company's net loss reached $439 million, and the loss expanded by 790% year-on-year.
In September 2019, the company was listed on the NASDAQ in the United States at an issue price of $29 per share, valuing it at $8.1 billion. After the epidemic, crowd gathering places such as gyms have gradually been restricted, the development of online fitness has accelerated, and Peloton's market value has risen steadily, with the highest market value exceeding 40 billion US dollars, and the PS high point has reached 25 times.
But after entering 2021, Peloton's market value has fallen sharply, and the current market value is only $7 billion (March 11 closing data), less than 13% of the market value at the beginning of 2021, and the PS valuation has also dropped from 25 times in 2020 to 3 times.
The Wall Street Journal commented that Peloton's business is hoping to transform the spinning bike from a luxury to a popular device, which "sounds a bit far-fetched." More critically, fitness is an "anti-human" business - users are easy to lose, how to shed wool in the "anti-human" business and retain users has become the key to winning the market.
Peloton's myth shattered, but also makes keep on this side of the ocean worrying. Under the premise that the revenue scale is only one-twentieth of Peloton, and the product line and paid users are far inferior to Peloton, how to get out of the curse of loss is the primary problem in front of Keep.
Resources:
Guosen Securities: Social Service Industry March 2022 Strategy and KEEP Prospectus Combing
Guotai Junan Securities: "Helping National Fitness, Keep Leads the Global Wave of Intelligent Fitness"
Disclaimer: This article is for knowledge sharing only, just to pass on more information! This article does not constitute any investment advice, and any person making investment decisions accordingly is at your own risk.