Even if Keep has achieved amazing results in the e-commerce business, it is still useless for the loss problem, and Keep is still in a huge loss.
Wen 丨 BT Finance Aoyama Egret
The APP known as the "favorite of iron people" is about to go public, and at the end of February, Keep submitted a prospectus to the Hong Kong Stock Exchange to prepare to impact the "first stock of sports technology".
Keep, which seems to be in the limelight, is actually not smooth on the road to listing, and in March 2021, it was rumored that it intended to land on the New York Stock Exchange, but it was rumored to cancel its IPO plan to the United States a few months after handing over the table. As for the reason for Keep's cancellation of listing in the United States, Keep has not been officially announced, but industry insiders generally believe that it is related to the special action of the Cyberspace Administration of China last year to rectify the illegal collection and use of personal information by app, and Keep also mentioned this regulatory risk factor in the prospectus.
The regulatory risk factors mentioned in the Keep prospectus
Although there are slight twists and turns in the middle, the pace of Keep's high-speed running has not stopped, and the prospectus shows that as of 2021, the platform MAU has exceeded 40 million people, and the revenue has also increased from 660 million yuan in 2019 to 1.11 billion yuan in 2020, and both user growth and revenue growth have achieved a leapfrog development trend.
However, the media still focuses on the problem that the Keep loss gap is difficult to fill, and there are also business model dilemmas, and even some media call it "bloody listing" and "financing blood".
Although there are also repeated reasons for the epidemic behind Keep's losses, for this unique "online fitness unicorn", the fundamental question is how to go through a path of commercial realization of its own.
Behind the bleeding listing
Keep was founded in 2014, the founder is called Wang Ning, Wang Ning previously lost more than 50 pounds because he was too fat, which led to an online fitness entrepreneurial project - Keep.
In fact, it can be seen from the industry data that 2014 is exactly the year of the outbreak of the domestic fitness industry, and Wang Ning can be said to be standing on the cusp. According to IT Orange statistics, in 2014, a total of 300 fitness companies were established in China (this data doubled in 2015), setting a new high.
After the general improvement of the quality of life of the Chinese people, how to make themselves look better has become a hot business, under the trend of slimming and plasticity, Keep's business has become bigger and bigger, and it has obtained nine rounds of financing in just 7 years, including many star institutions such as Hillhouse, Goldman Sachs, Tencent, GGV Jiyuan Capital, Yintai Capital and Bertelsmann Asia Investment Fund. And keep has 100 million users in just two years of launch, and the average monthly active monthly number and subscription membership of Keep in the industry so far are far behind competitors.
At present, although Keep is still in rapid growth, the average monthly active users in 2021 are also around 30 million, but the biggest problem in front of Keep is that operating losses continue to expand.
According to keep's prospectus, in the first nine months of 2019, 2020 and 2021, Keep achieved revenue of 663 million yuan, 1.107 billion yuan and 1.159 billion yuan, respectively. It is indeed in a high-speed growth trend for the company's operation, but at the same time, it can be seen that the year-on-year growth rate of Keep revenue in the first nine months of 2021 is slowing down, with a growth rate of only 41.3%.
Although keep's gross profit margin is also maintained at a high level, the net profit continues to lose. According to the prospectus, in 2019, 2020 and the first nine months of 2021, Keep's gross profit margin was 41.1%, 45.1% and 42.6%, while during the same period, Keep's net profit loss was 735 million yuan, 2.244 billion yuan and 2.458 billion yuan, and the adjusted net loss (excluding share-based compensation expense and changes in the fair value of convertible redeemable preferred shares) was 366 million yuan, 106 million yuan and 696 million yuan, respectively.
Keep explained this specifically in the prospectus, believing that loss is the company's priority in the formulation of strategic paths and the optimization of business models, and break-even is not the first factor to consider.
A closer look at Keep's prospectus shows that sales and marketing expenses are one of the biggest burdens on Keep's path to profitability.
According to the Keep prospectus, in 2019, 2020 and the first nine months of 2021, Keep's related expenses were 296 million yuan, 302 million yuan and 818 million yuan, respectively, and it should be emphasized that the sales and marketing expenses in the first nine months of 2021 increased significantly to 342%, directly accounting for 70.6% of the total revenue in the same period of 2020, while this expenditure accounted for only 22.6% of the revenue in the same period of 2020.
Industry Research Institute Li Huadong analysis believes that through the prospectus can be seen that keep's rapid growth is based on high marketing costs, in other words, burning money for the market, by comparing the development history of all entrepreneurial companies can be seen, this is not a long-term solution, as the company's operating and marketing expenses return to normal, whether it can maintain such growth is an unknown, and how many users can be retained is not easy to say.
Keep not only has a high marketing expense, but also has problems at the revenue level, and the unit price of paying customers has declined to a certain extent in recent years. According to the prospectus, the average monthly subscription members in the first three quarters of 2020 and 2021 were 1.86 million and 3.31 million, respectively, but the corresponding per capita expenditure was 133 yuan and 115 yuan, down 14% year-on-year, which is even worse for Keep, which is difficult to make a profit.
In addition, Keep is also launching a new business line, which further exacerbates the current situation of tight funds. In 2021, Keep announced that it was working on PUGC content, creating its own content ecology, and "repeatedly jumping" between online and offline businesses, and Keep, which had originally reduced losses, increased its efforts to burn money.
Keep, though confident at the time, announced: "Our confidence in long-term profitability has increased, so we have strategically increased our spending on traffic acquisition and branding to further acquire, activate and retain users." ”
However, all this has led to a continuous expansion of Keep's net loss, keep as of the end of the third quarter of 2021 excluding the impact of changes in the fair value of preferred stocks, the net loss of 700 million, adjusted net loss ratio of 60%, in other words, Keep the more losses.
Widening losses have exacerbated market concerns, and it is at this time that the media begins to question Keep's true motivation for seeking a listing at a loss.
One of Keep's prospectus compilers is Goldman Sachs
Keep's prospectus is slightly perfunctory compared to the prospectuses of other companies
Industry researcher Liu Yong pointed out that from The keep's prospectus, it can be seen that the investment bank (keep prospectus is written by Goldman Sachs and other investment banks) may not understand the business model of Keep, the prospectus is slightly perfunctory, and even there is a "sharp decline in international oil prices" such a low correlation statement, looking like "listing for the sake of listing", behind which is the capital overemphasizes the company's profitability, and does not pay attention to whether its business model and core business are healthy.
Fitness platform or e-commerce?
As can be seen from the Keep prospectus, its main business of revenue is divided into three parts, namely the sales of private label products, accounting for 60% of the revenue, which is the largest business in the three major businesses; followed by membership subscription and online payment, accounting for about 30% of revenue, and the least business is advertising, accounting for less than 10% of revenue.
Investor Wei Xin pointed out that the online fitness platform is generally lighter, similar to other Internet startups, but the online fitness platform relies more on the business on the stage, while the traffic is based, a large number of fitness content and industry are needed to match the collaboration, so the value-added service model is particularly important for platforms such as Keep, and it is not difficult to understand why a fitness platform is product sales account for the majority of revenue.
Keep prospectus for this model also describes, according to the Keep prospectus shows that fitness solutions around the user fitness life cycle, with online fitness content, intelligent fitness equipment, supporting sports products three major business lines as the cycle base point, the formation of membership subscriptions, content payment, hardware sales, advertising services and other revenue matrix.
To put it bluntly, Keep wants to form an ecological closed loop of the user's "eating and wearing practice" to increase user stickiness and increase profit points, the reason is understood, but keep's commercialization path is not as smooth as imagined.
Keep, which started as a fitness platform, has been exploring businesses other than fitness courses, and has expanded a number of business lines, such as selling fitness content, fitness equipment and supporting sports products, as well as exploring the research and development of smart wearable devices, and even exploring the offline heavy model.
Keep attaches great importance to the "e-commerce business", in 2017 on the Keep mall platform to test the water sales of its own brand of intelligent hardware products treadmills, and then launched smart bracelets and other fitness equipment, in 2019 is to expand the e-commerce business to catering, clothing and fitness equipment sales, and then launched fitness meals, substitute meals and other services.
Keep has even achieved amazing results in the e-commerce business, and by the end of 2021, Keep has sold a total of 1.2 million Keep bracelets, 180,000 treadmills, 67,000 smart bicycles, and a large number of dumbbells, yoga mats, etc. According to the report of China Insight Consulting, by the end of 2021, the sales of Keep smart bicycles have jumped to the first place in China, and Keep's own brand yoga mats have also been elected as the sales champion in 2021, with a market share of 14.9%.
Even at that time, some media wrote an analysis that Keep broke through the bottleneck of the content community's difficulty in profitability, and e-commerce became the only way for Keep to generate income.
However, the sale of a large number of private label products also brings more uncontrollable risks to Keep, such as Keep products that have been repeatedly criticized by regulators because of quality problems. At the beginning of 2022, the Beijing Consumer Association named Keep and detected that the measured values of the four vitamin indicators in its meal replacement powder were lower than the label values; in April 2020, the regulatory authorities notified that there were quality problems with Keep sports equipment; in June 2020, the Jiangsu Consumer Protection Commission notified that the use instructions for products such as bras and running socks sold by Keep Mall did not meet the standards.
Investor Wei Xin pointed out that Keep expands multiple business lines in order to achieve profitability, but excessive reliance on non-core business, will make overseas analysts and investors wonder, do not understand its business model, which is undoubtedly a door closed for Keep's desire for overseas listing, in addition, this model in the short term "thirst quenching" is OK, in the long run still need to return to the core business, looking for the growth of the core business is the embodiment of competitiveness. Wei Xin also believes: "Once the strategy deviates from the core business, it will not only directly aggravate the loss situation with huge costs, but also lead to the loss of existing users." ”
Even if Keep has achieved such results in the e-commerce business, it is still useless for the profit problem, and Keep is still in a continuous huge loss.
In addition, Keep has been investing in a huge smart wearable business, but also facing competitive pressure, the industry Huawei and Millet are accelerating the layout and R & D investment, Keep will then face and Huawei and Xiaomi such technology companies "hard" situation, if Keep to go on this business, is bound to intensify capital investment, which is not good news for Keep, which is difficult to make a profit.
In addition, Keep's exploration of offline gyms is also tireless, since 2018, Keep has opened a total of 15 stores in first-tier cities such as Beijing and Shanghai, but the industry is generally not optimistic about this, some articles pointed out that the online fitness platform is an asset-light model, if it comes to the offline store model will become heavier, the rent of offline fitness stores is expensive, the cost is high, which means that Keep needs to increase huge costs, if you can not create considerable revenue, offline services are difficult to continue, So you can see Keep closing 3 stores in Shanghai during the epidemic.
Investor Wei Xin believes that the Keep business model has not gone through, at this time the listing or capital wrapped up in this, if successfully listed, capital only emphasizes the profitability for Keep to return to the main line of business will be more difficult, if the growth of e-commerce and other businesses slows down, Keep will face a greater dilemma.
Is an online fitness platform a good business?
In fact, not only domestic industry researchers can't understand Keep, because the country can't find a company that can benchmark in advance, and many analysts abroad also express doubts about Keep, and even compare it with Peloton, another internationally popular sports technology platform.
For a long time in the past, overseas analysts have called Keep the "Chinese version of Peloton", because both platforms use content and hardware to form a business model, through membership and paid content and users to establish stickiness, so overseas analysts believe that the rise and fall of Peloton's stock price can affect the judgment of Keep.
In fact, there is a huge difference between the operating models of Peloton and Keep, and the American sports technology company Peloton is the "biggest beneficiary" of the epidemic, and in the market environment of the successive closures of offline gyms in North America, it has created a "god operation" in which the stock price has soared seven times in half a year. In contrast, Keep is not the "beneficiary" of the epidemic, but on the contrary, the business has been greatly affected by the epidemic.
Through the Keep prospectus, from 2018 to 2020, Keep's financing has appeared a blank period, which is the period of keep commercial exploration, but also the intensification of the impact of the epidemic for several years (late 2019 to the end of 2020), which directly led to the obstruction of Keep's offline business development, and the current Keep loss listing is also quite a meaning of financing return, and there is no sharp rise in performance like Peroton.
In addition, the fitness industry in North America has a high maturity, the fitness population penetration rate is high, Peloton does not need to cultivate the market to harvest users, and China's fitness market maturity is not so high, the fitness population affected factors include not limited to consumer enthusiasm, market conditions and the impact of the epidemic, the analysis pointed out that Keep is also quite helpless in the face of such a market, and the business model is also very screwed.
Combing Keep's business will find that keep business covers online sports courses, sports consumer goods business, and providing offline gym business, such a business line looks like a closed loop, but in fact it also creates a problem - there are many enemies and lack of competitive barriers.
The vast market means fierce competition, in the content community, B station and Xiaohongshu and other platforms have begun to get involved in the establishment of the field, Keep user stickiness in any case there is no way to compete with the content community to start the platform; as mentioned above, Huawei and Xiaomi have been in the forefront of the smart wear field; in addition, in the field of sportswear and fitness equipment, there are traditional giants Adi, Nike and even domestic ANTA, Li Ning and other giants; if it is the sports meal field, Keep also needs to face up to competitors in segments such as Wang Fengfeng.
Industry researcher Liu Yong pointed out that in the face of fierce competition in different tracks, this may be the deep reason why Keep will increase its efforts to burn money to promote marketing in 2021, but for Keep, even if it is out of the siege and will encounter new opponents, now Keep can only do vigorous marketing to expand the market, while making losses worse.
Where is the road ahead?
In fact, keep faces a much better fitness market than imagined.
Keep prospectus quoted the Insight Consulting report, which shows that by the end of 2020, China's fitness population reached 303 million, this data is expected to exceed 400 million in 2026, a compound annual growth rate of 6.5%, there is no doubt that online fitness platforms are one of the beneficiaries.
According to the data released by the Sports Expo, in 2020, China's female fitness population is the fastest growing group, women download and open sports APP frequency is significantly higher than that of men, and women prefer to follow APP or video exercise classes at home, in addition, women in the purchase of fitness cards, fitness classes, sports APP members consumption frequency is higher and more significant than men.
Keep obviously also noticed this, as early as March 2020 Keep released a women's home sports report, which shows that female active users account for more than 60% of all users, in addition, during the "Double Eleven" period in 2021, female users spend more than twice as much on the Keep e-commerce platform as male users, and the purchasing power is significantly higher than that of male users.
In the future, keep users can focus on female users, and even develop special female fitness APP, for female users to do a series of optimizations, female users in the future or can become the second growth curve of Keep.
In addition, Keep can also use low-tier city users as a potential area for future growth, and the data of China Insight Consulting also points out that the fitness population in China that is growing, the most potential is from low-tier cities. Although 52% of Keep's monthly active users are from first- and second-tier cities at present, from the perspective of keep's new user growth trend, the user growth potential of Keep low-tier cities is not weak, new users are constantly infiltrating into lower-tier cities, and the population base of low-tier cities with sports needs is even larger.
In addition, as one of Keep's core businesses, membership subscriptions and online paid content are also the most imaginative parts of Keep's future business. According to the Keep prospectus, Keep member subscription and online paid content revenue increased by 52.5% from $250 million for the nine months ended September 30, 2020 to $380 million for the nine months ended September 30, 2021. Subscription membership increased from 800,000 in 2019 to 3.3 million in 2021.
What provides impetus for the growth of online subscription and paid business is high-quality content, and how to build its own content ecology is exactly the priority that Keep should give priority. Keep Creator Operation Director Wang Nan also made a speech on this before, Wang Nan said that more content incentive mechanisms will be added in 2022, and more than 10 billion flows and 50 million cash incentives will be invested to promote the creation of high-quality content ecology.
Keep's prospectus shows that Keep is carrying out a wide range of cooperation models with talents and fitness content providers, at the same time, Keep also cooperates with world-renowned fitness content providers to provide licensed courses, in addition, Keep has also begun to try the trend of play "cross-border" and "co-branding", such as cooperation with the King of Fighters IP, the launch of virtual idol fat burning exercises, virtual girl groups and Pamela bracelets and other new courses. This is undoubtedly the right direction, after all, building a good content ecology is the foundation of the content community.
Although Keep's previous offline business has been blocked, in 2022 Keep has a trend of returning to offline again, Keep announced the launch of the "Preferred Gym Program" in 2022, planning to open to 100 within the year. What is different from the past is that Keep will not re-operate in person this time, but cooperate with traditional gyms, and keep professional coaching teams enter the group gymnasium of cooperative gyms for operation, which will undoubtedly greatly reduce operating costs and be more in line with the "advantage playing style" of Internet companies.
It can be seen that keep after several years of experience, for how to achieve the switch between online to offline business, from free to paid conversion, has formed its own set of play, which is behind the Chinese fitness industry is quietly changing, online fitness platform and offline gym has long been not a competitor relationship, has blurred the boundary and gradually grown into a new format.
But for Keep, still an explorer in the industry, just like Keep's slogan, needs to use a stronger "self-discipline" to open up the space for imagination.
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