Su Hua and Cheng Yixiao have made Kuaishou together.
Su Hua, who can speak for 7 months and can recite "Mulan Ci" at the age of 3, was a well-known genius in Yongshun County, Xiangxi Tujia and Miao Autonomous Prefecture, Hunan Province at that time. Su Hua's family background is not bad, his father was a civil servant in the town in the early days, and then went to the sea to do business and agricultural machinery business, which is also a small achievement. Su Hua's initial contact with programming was a reward from his father - Xiaobawang learning machine, the difference is that Su Hua did not indulge in the game world, but at the age of 12, he had a strong interest in programming and began to teach himself programming.
Su Hua did not waste his talent, in 2000, 18-year-old Su Hua was admitted to the School of Software of Tsinghua University, as he wished, he was admitted to the graduate school, and he was a master's and doctoral student, but so far Su Hua's academic qualifications have not been raised by the doctorate, because he dropped out of school halfway and voluntarily gave up his doctorate, the reason is very simple, the housing prices in Beijing at that time made him feel that even if he studied for a doctorate, he could not afford to buy a house in Beijing.
In 2005, Su Hua, who had just graduated from undergraduate, had 50,000 yuan of savings earned by programming in college for 4 years, he wanted to buy a house in Beijing with a mortgage, but this money was only enough for the down payment of a house outside the fifth ring road in Beijing, he wanted to save some money to buy a house closer to the city, but after a year passed, housing prices soared, which hit Su Hua, he wanted to work early to make money, so he stopped continuing to study for a doctorate, and got a Google offer through an interview, but after 2 years, Su Hua chose to start a business, the purpose was very simple, that is, to make money quickly, to realize the dream of a North Drifter to settle down in Beijing.
The initial entrepreneurial road was not smooth, Su Hua had done more than 30 projects before Kuaishou, but all failed without exception, until 2013 when he met Cheng Yixiao, the current chairman of Kuaishou, and the two best partners were put together. Although Su Hua was the first chairman of Kuaishou, the real situation is that at that time, Cheng Yixiao, the founder of Kuaishou, had already received an investment of $2 million from Morningside Capital and owned 80% of Kuaishou's shares.
The prototype of Kuaishou was co-founded by Cheng Yixiao and his colleague Yang Yuanxi as early as 2011, with only 4 team members. It was not until 2013 that the 4G network and Wi-Fi were popularized, allowing Kuaishou to see the broad prospects of short videos, but Cheng Yixiao found that the company's many problems could not be solved by itself, so he had a strong desire to recruit talents.
Under the recommendation of a friend, the two most important people of Kuaishou finally met in the summer of 2013, this meeting was compared to the "Long March Master" by Su Hua and Cheng Yixiao, Su Hua has done many years of research and development of search and recommendation algorithms, and there is a leading advantage in technology, and Cheng Yixiao has a deeper understanding of the client after many years of exploration by Kuaishou, and the two have their own strengths and complement each other, and since then Kuaishou has entered the fast lane of rapid development.
After Su Hua joined Kuaishou, within a year, Kuaishou's daily active users exceeded 1 million. Since the second half of 2014, Kuaishou has exceeded 10 million daily active users in just six months, achieving a tenfold growth. And this may be due to Kuaishou's algorithm recommendation, that is, what video the user prefers, the relevant recommendation will increase, and the number of video uploads of more than one million per day has made Kuaishou countless fans.
After another 6 years of development, on February 5, 2021, Kuaishou was successfully listed on the Hong Kong Stock Exchange with an issue price of HK$115, which was subscribed by more than 1.42 million retail investors, oversubscribed by 1,204 times, setting a new record in Hong Kong. On the opening day, Kuaishou rose 194%, with a share price of HK$338 and a total market capitalization of HK$1.39 trillion, ranking eighth among Hong Kong stocks. 21 days after listing, Kuaishou's share price reached HK$417.8, the share price soared 263.3%, and the market value reached HK$1.8 trillion. But Kuaishou's listing was at its peak, and then the stock price fell all the way. It's just that this does not affect the worth of Su Hua and Cheng Yixiao, both of whom were once worth more than 30 billion yuan.
Kuaishou has developed extremely rapidly after Su Hua joined, but Su Hua has not solved the problem that Kuaishou has been losing money. Kuaishou under Cheng Yixiao made a profit.
After Su Hua left office, he turned losses into profits
On March 20, 2024, Kuaishou released its 2023 financial report, with annual revenue exceeding the 100 billion yuan mark for the first time, and also turning losses into profits for the first time, with adjusted net profit exceeding 10 billion yuan. As of the close of trading on March 25, Kuaishou's share price was HK$48.6, a high peak drop of nearly ninety percent, and the market value evaporated by HK$1.6 trillion.
The financial report shows that from 2017 to 2021, Kuaishou has been losing money, with losses of 20.04 billion yuan, 12.43 billion yuan, 19.65 billion yuan, 116.6 billion yuan, 78.07 billion yuan and 13.69 billion yuan respectively, with a total loss of 260.48 billion yuan in 6 years, with an average annual net loss of 43.4 billion yuan.
In 2023, Kuaishou's revenue will be 113.5 billion yuan, an increase of 20.48% compared with 94.18 billion yuan in 2022, an increase of 4.32 percentage points compared with 16.16% in 2022, but the second lowest increase since 2017. Compared with the revenue growth of more than 50% from 2018 to 2020, Kuaishou's revenue growth has slowed down significantly in the past two years.
Compared with the record loss of 116.6 billion yuan in 2020, in 2023, Kuaishou will achieve a net profit attributable to the parent company of 6.396 billion yuan, and the adjusted net profit will exceed 10 billion yuan for the first time to reach 10.27 billion yuan. Among them, the increase in net profit attributable to the parent company was as high as 146.72%, much higher than the revenue growth rate of 20.48%.
On October 29, 2021, Su Hua resigned as CEO of Kuaishou, and on the same day two years later, Su Hua resigned as chairman of Kuaishou again, and the replacement for both departures was Cheng Yixiao. When Su Hua resigned as chairman on October 29, 2023, the turnaround in 2023 can't be said to have nothing to do with Su Hua, but during his tenure, Kuaishou has indeed been losing money.
Since Cheng Yixiao took over the relevant positions of CEO and chairman of Su Hua, he still reported to Su Hua, which surprised many people, and it is enough to show that Cheng Yixiao attaches great importance to Su Hua, and at the same time shows that the "double boss" system implemented by Kuaishou may have caused a certain degree of confusion in management, after all, the "double boss" of R&F Real Estate has been tested by the market and has not been successful. Cheng Yixiao took over as chairman of Kuaishou for only 1 month until the end of 2023, and it is obviously unfair to attribute Kuaishou's turnaround to Cheng Yixiao.
After Cheng Yixiao took the helm of Kuaishou, Kuaishou slowed down. In the fourth quarter of 2023, Kuaishou's revenue was 32.56 billion yuan, a year-on-year increase of 15.1%, which was lower than the growth rate for the whole of 2023. The operating profit was 3.622 billion yuan, the net profit was 3.612 billion yuan, and the adjusted net profit was 4.362 billion yuan. It can be seen that Kuaishou's profitability has been greatly improved in the case of a significant slowdown in growth.
The financial report shows that in 2022, Su Hua's salary will be 5.2 million yuan, and Cheng Yixiao's salary will be 48.22 million yuan, and Cheng Yixiao's salary will be more than 9 times that of Su Hua, while in 2020, Su Hua's and Cheng Yixiao's salaries will be 5.93 million yuan and 5.89 million yuan respectively, with a difference of only 50,000 yuan. In 2021, Su Hua and Cheng Yixiao's salaries will be 6.05 million yuan and 5.85 million yuan respectively, which are basically the same.
Rising gross margins
Kuaishou's revenue exceeded the 100 billion mark for the first time and its first profit was inseparable from the improvement of gross profit margin. The financial report shows that in 2023, Kuaishou's gross profit margin will be 50.58%, a record high. In 2022, the gross profit margin of 44.73% increased by 5.85 percentage points. During the same period, Kuaishou's net profit margin was 5.64%, which was also the first positive net profit margin since its establishment. The net profit margin in 2022 will be -14.53%, and the net profit margin in 2023 will increase by 20.17 percentage points.
It is worth mentioning that since 2018, Kuaishou's gross profit margin has been increasing. From 2018 to 2021, Kuaishou's gross profit margin was 28.58%, 36.05%, 40.52%, and 41.97%, respectively, which increased by 7.47 percentage points, 4.47 percentage points, and 1.45 percentage points during this period, and increased by 2.76 percentage points in 2022 compared with 2021. In the past six years, Kuaishou's gross profit margin has increased by a total of 22 percentage points, which is an astonishing increase.
Financial analyst Xu Yi believes that while Kuaishou's revenue and gross profit margin are growing together, the three major operating costs, including marketing, administration, and R&D, have hardly increased, which means that the company's operational efficiency has been improved. "Unlike some companies that rely on cost reduction to make profits, Kuaishou's three major operating costs have not decreased too much, which shows that Kuaishou's infrastructure investment in the early stage has achieved initial results. ”
According to the financial report data, in 2023, Kuaishou's marketing expenses will be 36.5 billion yuan, a decrease of only 1.7% compared with 37.12 billion yuan in 2022, and even compared with the marketing expenses of 44.18 billion yuan in 2021, the decline is only 17%. Administrative expenses in 2023 will be 3.514 billion yuan, down 10% from 3.921 billion yuan in 2022, but still higher than 3.4 billion yuan in 2021. The R&D expenses in 2023 will be 12.34 billion yuan, a decrease of 10% compared with 13.78 billion yuan in 2022, and the R&D expenses have been declining in the past three years, but there is still a huge increase compared with 6.548 billion yuan in 2020 and 2.944 billion yuan in 2019.
In Q1 of 2023, Kuaishou's adjusted net profit was 42 million yuan, and in the second quarter, it rose to 2.69 billion yuan, a 63-fold increase from the previous quarter, gradually showing an obvious trend of profit expansion.
Kuaishou's revenue in the third quarter of 2023 was 27.948 billion yuan, an increase of 20.8% from 23.128 billion yuan in the same period last year, gross profit was 14.453 billion yuan, an increase of 35% from 10.7 billion yuan in the same period last year, gross profit margin was 51.7%, up from 46.3% in the same period last year, adjusted profit was 3.173 billion yuan, and adjusted net profit in the fourth quarter was 4.362 billion yuan, with quarter-on-quarter growth of 6305% and 18% respectively and 37.5%, the net profit growth trend is stable.
The income structure is gradually healthy
Judging from the recent quarters and the 2023 annual report, Kuaishou is gradually developing towards a healthy structure.
Kuaishou's revenue is mainly composed of online marketing services (advertising), live streaming and other services (including e-commerce) revenue. The proportion of online marketing services increased from 30% in 2020 to 51.7% in the previous year of 2023, and in Q4 of 2023, Kuaishou's online marketing service revenue was 18.2 billion yuan, accounting for 56% of the total revenue of 32.56 billion yuan in the same period. Live broadcast business: In 2023Q4, it will be flat at 10 billion yuan year-on-year, deeply cultivate local expansion operations in major regions around the world, promote new content, new interactions, and new ways to play, continue to explore and cultivate high-quality live broadcast content and live broadcasts, empower traditional industries with the "live broadcast +" model, and develop the business of Kuaipin and Ideal Home steadily.
Other revenues, including e-commerce, increased from less than 5% to 12.4% in the first half of 2023. In 2023Q4, the year-on-year growth rate of 36.2% to 4.3 billion yuan, the year-on-year increase of e-commerce GMV increased by 29.3% year-on-year to 403.9 billion yuan, the average number of monthly buyers exceeded 130 million, more than 1 million operators participated in the Double 11 promotion, the average monthly number of dynamic sales merchants increased by more than 50% year-on-year, brand goods continued to grow, and pan-shelf e-commerce accounted for more than 20%, and the overall operating loss of overseas business decreased by 63.2% year-on-year, further narrowing the month-on-month operating loss.
This can be seen from Kuaishou's performance in the first half of 2023, in the second quarter of 2023, Kuaishou's other service revenue, mainly e-commerce revenue, increased by 61.4% year-on-year, much higher than the industry average growth. As the basic market of Kuaishou, the advertising business increased by 30.4% year-on-year, while the growth of live broadcast revenue was relatively low year-on-year, only 16.4%, but tended to grow steadily.
According to the 2023 annual report, advertising and e-commerce are still the main components of Kuaishou's revenue. In 2023, Kuaishou's advertising revenue increased by 23% year-on-year to RMB60.3 billion, the live streaming business segment increased from RMB35.4 billion in 2022 to RMB39.1 billion, and the revenue of Kuaishou's other services segment increased by 44.7% to RMB14.1 billion from RMB9.8 billion in 2022. Online marketing services, live streaming and other services accounted for 53.1%, 34.4% and 12.5% of the total revenue for the year, respectively. The proportion of live streaming and other services has increased significantly.
This growth is first and foremost due to the continuous increase in user scale and total traffic, with Kuaishou reaching 700 million monthly active users and 383 million daily active users in the fourth quarter of 2023. Among them, the average daily active user duration is 124.5 minutes, and the overall user stickiness is high. Advertisers usually focus more on promoting ads on platforms with more total traffic, and Kuaishou has a huge amount of traffic and sticky users, which brings a large number of advertisers by increasing the conversion rate, which is also the key to increasing the proportion of Kuaishou's advertising revenue.
In addition to the above-mentioned business composition, Cheng Yixiao is vigorously promoting the development of the self-developed Wensheng Diagram large model "Ketu". On the earnings call, Cheng Yixiao said that Kuaishou focused on R&D and training of 175 billion large-scale language models in the fourth quarter of 2023, and achieved satisfactory evaluation results. In the next six months, the comprehensive performance of Kuaishou's self-developed large model can reach the level of GPT4.0.
Once Kuaishou can combine generative models and producer tools in the future to help creators lower the threshold for creation and improve the quality and efficiency of short video production, Kuaishou's user stickiness and loyalty will be greatly improved, and huge economic benefits will follow.
Overseas expansion requires learning from TikTok
In the situation that it is difficult to compete with Douyin in the domestic market, the competition in overseas markets has become the main battlefield of the two short video giants, but from the current point of view, the international version of Kuaishou still needs to learn from TikTok.
According to public information, TikTok has covered more than 150+ countries around the world, with daily active users exceeding 1 billion, and the number of downloads is far ahead of the world's major apps. However, the creators are only less than one-tenth of the domestic ones, so the organic traffic is very large, and there are relatively few competitors. Although it is an overseas platform, the operation is very simple, even if the user does not have any foreign language foundation.
At present, TikTok is still dominated by short videos and live broadcasts in the world, which is very suitable for the tastes of young people and has a very high user retention rate. In addition, TikTok's official currently encourages users to create their own videos to improve the richness of short videos.
Kwai and SnackVideo are two short video apps from Kuaishou overseas, with the former focusing on Latin America and the Middle East, and the latter focusing on Southeast Asia. Previously, Kuaishou's overseas branch was an important factor blocking Kuaishou's profitability, with a revenue of only 600 million yuan in 2022 and an operating loss of 6.6 billion yuan.
In 2023, Kuaishou's annual overseas business revenue will reach 2.28 billion yuan, a year-on-year increase of nearly 3 times, and the operating loss will narrow to 2.8 billion yuan. However, Kuaishou did not release specific overseas user data in the financial report, and the last time the data was released was in the first quarter of 2021, the average overseas MAU in the quarter exceeded 100 million, and in April 2021, the overseas market MAU increased to more than 150 million, and the user data was no longer disclosed since then, and the reason is unknown.
Douyin's overseas version of TikTok is now one of the most popular apps in the United States, with a conservative estimate of more than 1.5 billion monthly active users worldwide.
TikTok chose mature markets such as the United States, Canada and Japan, and then penetrated into less developed countries and regions, while Kuaishou focused on Latin America, the Middle East and Southeast Asia. In 2023, Kuaishou's monthly active users in Brazil will grow by 80% year-on-year, and in Indonesia, it will grow by 50%.
Among them, among the 160 million Internet users in Brazil, Kuaishou accounts for nearly one-third of the users, and Kwai is the number one app downloaded in the local area. Snack Video MAU reached 43 million, and despite the rapid growth, the base is still low. Comprehensive third-party platform data shows that TikTok's penetration rate in Brazil is as high as 44%, and Kwai's penetration rate in Brazil is still far from TikTok.
When Kuaishou's first quarter report for 2023 was released, Cheng Yixiao announced in a high-profile manner that "a major breakthrough in Kuaishou's profitability", Kuaishou announced on May 22, 2023 that it would repurchase shares with no more than HK $4 billion, with a profit + huge repurchase, which made Kuaishou's share price rise 6.8% on the day of the release of the financial report, with a turnover of 2.295 billion yuan.
Kuaishou under Cheng Yixiao has entered the stage of steady operation, and now what Kuaishou needs to do is to learn from TikTok, because TikTok's volume in the overseas market has become a successful sample of the short video industry going overseas, and it is only a matter of time before the stock price recovers under the premise of improving performance and recovering in overseas markets.
Author | Mowgli