#HTE

Rumors have been floating for months that ByteDance is going public with TikTok and Douyin separately. Just last night, Bloomberg reported that ByteDance is seeking a pre-IPO round of $2 billion at a staggering valuation of $180 billion.

Before any of that materializes, ByteDance Chinese rival Kuaishou has moved ahead to file for an initial public offering in Hong Kong Thursday night, and its prospectus is shedding light on a race where both growth and costs are astronomical.

Launched by a former Google engineer in 2011 to share GIFs, Kuaishou has evolved into a nemesis of Douyin, TikTok’s sister in China. 21.5% owned by Tencent, the company reported a net loss of 6.8 billion yuan ($1 billion) in the first six months of 2020 while operating loss stood at 7.57 billion yuan. In contrast, it logged an operating profit of 1.1 billion yuan in the same period just last year.

The increase was in part a result of the company’s aggressive promotion of its lite version Kuaishou Express, which tailors to China’s less tech-savvy demographics. Unlike ByteDance, Kuaishou has had limited success overseas and relies on continuous domestic growth.

Its selling and marketing expenses skyrocketed 354.1% from 3 billion yuan in H1 2019 to 13.7 billion yuan in H1 this year. But the splurge seemed to have paid off: the lite app gained 100 million DAUs within a year. It’s a game of pay-to-play.

The main app Kuaishou itself, as of June, reached 302 million daily users, who spent over 85 minutes on the app per day engrossed in watching clips and live sessions. For comparison, Douyin crossed 400 million DAUs in January.

Though known as a “short-video app”, Kuaishou earns most of its revenue — 68.5% in H1 — from live streaming, during which audiences can send hosts virtual items priced anywhere between 1 and 2,000 yuan. Other monetization avenues include advertising, which accounted for 28% of its revenues, as well as less significant sources like e-commerce and games.

Douyin, on the other hand, pulled in about 67% of its revenues from advertising last year, a source told TechCrunch earlier, while live-streaming made up 17%.

The revenue makeup reflects the core use case of the apps. Kuaishou often prides itself on user engagement; indeed, over a quarter of its 776 million monthly users are creators themselves. That makes Kuaishou more of a social app where the viewers and creators interact frequently through means like live streaming and gifting.

Douyin, with algorithms that favor premium content, acts more like a form of media as some Chinese venture capitalists observed, making it a destination for showing ads.

In terms of revenue size, Kuaishou generated 39.1 billion yuan last year, about one-third of what ByteDance made last year. But one should keep in mind that ByteDance has another cash cow: its news and information aggregator, Jinri Toutiao.