The company announced its 2023 results on March 28. It achieved full-year revenue of 2.14 billion yuan (-3.3%), annual profit of 1.11 billion yuan, and adjusted profit (after changes in basic remuneration expenses of shares and fair value of convertible and redeemable preferred shares) was a loss of 295 million yuan, a year-on-year reduction of losses. Among them, 2H23 achieved revenue of 1,153 billion yuan (-4%) and net profit of -72 million yuan, which continued to reduce losses compared to the first half of the year.
Content: Contributing 47% of revenue, the average revenue of monthly active users increased year-on-year. In 2023, the company's online membership and paid content business contributed +11.4% to 996 million yuan in revenue, accounting for an increase of 6.2 pct to 46.6%. 1) The average number of monthly active users/number of subscribers was 2,980w/320w respectively, mainly affected by the resumption of offline activities and the company's strategic reduction in customer acquisition marketing campaigns after the epidemic; the member penetration rate increased by 0.7 Pct to 10.7%, reflecting that high-quality content+outdoor plans have been partially transformed into customer acquisition & traffic monetization drivers. 2) Benefiting from the continuous growth of the virtual event business, the average monthly revenue of monthly active users increased by 17.6% in '23, achieving high-quality endogenous growth. In 2023, the Keep App launched more exclusive content for members. Member recording and broadcasting courses were increased to 4225 sessions, and various features such as personalized route navigation, user competitive social interaction, and collaboration with product hardware were added to differentiate and enhance the member experience.
Consumer goods: Short-term growth is under pressure, and the layout of smart devices and supporting products is gradually improving. In 2023, the company's own brand products achieved revenue of 950 million yuan, -16.8% year-on-year, accounting for 44.3% (-7Pct) of total revenue; the decline was mainly due to a decline in online consumer sentiment after the epidemic was fixed, as well as the company's strategic control costs. In terms of smart products, the company launched the new self-generating smart bike C1 Mini+, the B4 Lite bracelet, the first AI rowing machine, and the K4 treadmill, which combines functionality and design. In terms of ancillary products, by the end of '23, the Keep App had expanded the theme to 74 realistic cycling routes. Users can monitor their physical performance and heart rate changes at any time with the bracelet.
Gross margin increased significantly, and losses were reduced as scheduled under cost reduction and efficiency. The company's gross margin in 2023 was 45.0%, up +4.3Pct year-on-year, mainly due to an increase in revenue and gross profit contributions from online members and paid content. By business, in 2023, the gross margin of private brand products/ membership & paid content/ advertising was -0.4/+8.6/ -15.1 pct to 27.7%/62.8%/37.6%, respectively. The company strengthened the optimization of content-related costs and employee benefits, which led to a significant increase in the gross margin of the content business. In 2023, the company's fulfillment/sales/management/ R&D expense ratios were 7.3%/26.6%/9.8%/21%, respectively, down 1.8/2.6/1.3/3.2Pct year-on-year. The company strategically reduced customer acquisition and marketing expenses, optimized warehousing and logistics costs, and carried out personnel adjustments to drive various cost optimization. Cost reduction and efficiency led the company to reduce losses as scheduled. Net profit on the reporting side was 1,106 billion yuan during the year. If the effects of share-based remuneration expenses and changes in the fair value of convertible and redeemable preferred shares were excluded, the adjusted loss was 295 million yuan, reducing losses as scheduled in '22.
As the largest online fitness platform in the country, Keep's advantages in terms of content acquisition and membership monetization are gradually becoming prominent. Currently, the member penetration rate has reached 10.7%. It is expected that with improved high-quality content, outdoor scene expansion, and AI, member retention and conversion are expected to further increase. In terms of monetizing consumer goods, the company has gradually built up its smart fitness equipment and supporting product matrix. As consumer sentiment flows back online, it is expected to drive improvements in the consumer goods business in 24 years. We expect the company to achieve revenue of 23.15/25.51/2,837 billion yuan from 2024 to 2026, an increase of 8.3%/10.2%/11.2% respectively, corresponding to 0.8 times PS in 2024, maintaining the “buy” rating.
Risk warning: Platform customer acquisition costs increase, industry competition intensifies, supply chain management