The uniqueness and difficulty of the Keep business model is that it mainly obtains customers through content and monetizes through paid content+consumer goods. The two follow different business logic and competitive elements. If it runs through, it is expected to build a high barrier for it. Therefore, this report will analyze its models and competitiveness in different areas, as well as the possibility of the overall model going through from this perspective.
Content - Internet Logic: How to solve the pain point of “I don't want to move” and the need for more expertise. Content is the earliest and most core model form of Keep, using apps as the main carrier, and content acquisition - advertising fee/membership fee traffic monetization as the main business model. Analyzing the competitiveness of the Internet from the logic of it:
1) Traffic acquisition: Taking advantage of the Internet plus sports dividends, Keep followed the trend in 2015 during the popularity period, accurately locating fitness tracks, and the number of users grew rapidly after launch. In order to enhance platform exposure, Keep mainly uses marketing methods such as celebrity & KOL cooperation, content advertising, and cross-border cooperation and co-branding. 2) Traffic retention: The core pain point of improving MAU on fitness tracks is the depth and breadth of content. In terms of depth, Keep gradually satisfies users' requirements for professional depth from basic fitness content standards → systematic curriculum planning → AIGC empowerment, and establishes high barriers. In terms of breadth, Keep digs deep into user needs based on its own user portraits, strives to meet the needs of different stages and functions, and increases richness within the same requirements, and now has more than 36 million MAU. 3) Traffic conversion: Membership fees and advertising revenue are one of its most direct and important revenue sources, and the gross margin is as high as 50%. The increase in their share will play an important role in increasing profitability. It is difficult for fitness platforms to increase member penetration, but Keep still achieved excellent results with a 10% membership penetration rate through differentiated and structured content. Benchmarking the 36% membership penetration rate of overseas Peloton, there is still plenty of room for improvement in the future. 4) Traffic fission: Keep's community module strengthens its social attributes, user sharing increases stickiness and brings in new users, and closes the loop of positive feedback.
Product-consumer goods logic: Can the transformation from content traffic to consumer goods work? The consumer goods business is an important monetization method for Keep, but following the business logic and competitive elements of consumer goods, channels and brand marketing can take on the advantages of the Internet content business described above, while product power and price positioning have no foundation of advantage in the Internet content sector and require focused analysis. Specifically, the sales logic of Keep smart devices and ancillary products is also different.
Smart fitness equipment - durable goods logic: product is king. Smart fitness equipment includes treadmills, exercise bikes, exercise bracelets, etc., and has the characteristics of high customer unit prices, high product barriers, and a long renewal cycle. It is a typical durable consumer product. Product strength is the core competitiveness. Keep adopts the “self-built team+supplier cooperation” model to complete the development process of smart fitness equipment, and professional smart fitness equipment manufacturers are responsible for production; furthermore, continuous content iteration and content interaction bring significant differentiated experience upgrades. The compound revenue growth rate of smart fitness equipment reached 48% from 2019 to 22, gradually verifying Keep's competitiveness among smart devices.
Supporting products - FMCG logic: channel is king. Keep's ancillary product business mainly includes yoga mats, sportswear, etc., and has the characteristics of low customer unit prices, high repurchase rates, and low product barriers. It is in line with the commercial logic of FMCG products. Channels and new products that meet consumer needs are core competitiveness. Keep builds an ecosystem around fitness by qualifying popular products based on its fitness brand effect. The compound annual growth rate of sales of ancillary products reached 39% from 2019 to 22, accounting for 31.6% of total revenue in '22.
Investment suggestions: We expect the company's revenue for 2023-25 to be 20.9/22.6/2.48 billion yuan, -6%/+8% +10% year-on-year, respectively, and adjusted net profit (note: adjusted net loss = annual loss (including minority shareholder loss) +share-based compensation expenses+changes in fair value of convertible and redeemable preferred shares) of -320 million yuan, -190 million yuan, and +17 million yuan respectively. By 2025, we are expected to achieve profit and loss balance through cost reduction and efficiency. Considering that Keep mainly focuses on building a full-link ecosystem around sports and fitness, we chose Shuhua Sports, China Sports, and Rhine Sports as comparable companies; however, Keep has outstanding advantages in the online fitness category, and there is some similarity with direct recruitment by Boss, who is also the leader in the app segment. We use the PS valuation method. Comparable companies' average PS for 2023-25 is 5.1/4.3/3.7, respectively. Considering that Keep is significantly active in fitness apps, and its differentiated high-quality fitness content, smart fitness equipment, and supporting products further strengthen user stickiness and form a closed loop in the fitness ecosystem, we gave the company 7 times PS in 2024, corresponding to the target market value of HK$17.404 billion, corresponding to the target price of HK$33.09 per share, covering the “buy” rating for the first time.
Risk warning: platform customer acquisition costs increase, industry competition intensifies, supply chain management risks