Industry analysis: Online fitness is popular, and Keep is in a leading position. In 2022, the size of the domestic online fitness industry was 486 billion yuan, with a compound growth rate of 19%. Compared with Europe and the US, there is still a lot of room for the penetration rate of fitness people.
Keep is the leading fitness platform, accounting for 25% of the monthly activity in China. We estimate that Keep's online fitness food/apparel equipment/Internet of Things/membership payment market share is about 0.01%/0.5%/2.8%/28.0%, respectively.
Company profile: “Content+e-commerce” creates a closed loop of business, and revenue is growing rapidly. The company was founded in 2014. It took 4 years to perfect the training matrix for eating, wearing, and has about 30 million monthly activities. The three major business consumer goods/membership payment/advertising account for 51%/40%/8%. The business model has been implemented. Traffic is imported from apps, high-quality courses stimulate users' willingness to pay, and consume supporting equipment. At the same time, consumer goods can flow to the app from the outside.
In 2021-2022, the company's revenue increased by 46%/37%. It invested heavily in early marketing and R&D, and is not yet profitable.
Competitiveness: Continuous marketing creates a better brand perception, and initially has the skills to maintain user stickiness. Keep has two core advantages. 1) Brand awareness: early entry with professional fitness, gradually forming a better brand awareness through differentiated value propositions and strategic positioning, and accumulating a good reputation and a huge active user base. It keeps the Baidu Index above 7000, and other competitors are less than 1,500. 2) Quality content and products: One-stop sports gym. The app is fully functional, the course content is rich and vivid, and the app is tied to the hardware, forming a complete eating and use training matrix where the app provides traffic entry, hardware records big data to understand consumer needs, and supporting products provide caring services. It initially has the skills to maintain user stickiness.
Outlook: Leveraging existing advantages to integrate brand product channels, profit can be expected. Overseas giant Peloton has a similar business model to Keep, but it targets different markets and user needs, so the future development path may be different.
We compare and analyze sports brands and smart hardware leaders separately to explore the development potential and profit prospects of Keep. 1) Consumer goods: The cultivation of brand power enhances user stickiness, and the expansion of new categories and channels promote scale growth. 2) Membership and advertising: The increase in the penetration rate of paid business is related to content supply, and there is enough room for paid content ARRPU to improve; Keep, as a fitness platform, reflects healthy living, and can increase the advertising penetration rate of health-related industries. 3) Profit outlook: On the gross profit side, the increase in bargaining power in the supply chain, product innovation, and the expansion of high-margin clothing categories drive an increase in the gross margin of consumer goods; in terms of cost, there is still room for a slight decline in marketing rates; R&D rates have a scale effect and will decline linearly as revenue grows.
Risk warning: The development of the industry falls short of expectations, and the competitive landscape worsens; the expansion of company categories and channels falls short of expectations, monthly activity and the number of paying members have declined, and the average payment amount of members has declined; product design flaws.
Investment advice: We expect the company's revenue to be 15% CAGR in 2023-2025, giving the company a target price of HK$20.4-23.0 for 2024, corresponding to PS 4.0-4.5x. The company is a leading fitness platform in China and is currently not profitable. Under the impact of the liberalization of epidemic control, monthly activity in June 2023 decreased 16% compared to December 2022. It is recommended to observe the company's ability to grow, as well as core indicators such as gross profit margin and sales fee rate to observe the company's monetization capacity, cover it for the first time, and give it an “increase in holdings” rating.