First, how to value Kuaishou Technology's listing

After nearly a decade of continuous iteration, Kuaishou Technology, based on the core position of short video, has nearly 500 million monthly active users, with an average daily active users of 85.3 minutes, and is currently the absolute head player of the domestic short video track. After years of commercial exploration, three core businesses have been developed: live broadcast, online marketing and online e-commerce. Based on the large number of users, Kuaishou Technology achieved revenue of 40.677 billion yuan in the first three quarters of 2020, which shows that the "old buddies" are not only Wangding, but also prosperous.

Kuaishou Technology is a new product of this era. It is not only one of the largest short video platforms in China, but also has a strong social atmosphere. For this complex super ecology, what the market determines is Kuaishou Technology's future growth and profit potential. What the market is uncertain is the reasonable valuation of Kuaishou Technology at the present time.

In this regard, this paper will start from the absolute valuation, based on the consensus of the market and future assumptions, predict the reasonable valuation range of Kuaishou Technology at the current time.

Before making a quantitative prediction, it is necessary to have a brief understanding and introduction of Kuaishou Technology's platform, user scale and core business.

1) platform and user scale

Short video is the "traffic black hole" of the entire Internet at present, and it is the most popular content form for users. In terms of users, there are nearly 900 million short video users in China, and daily active users spend nearly 100 minutes a day on short video App, occupying the time and attention of a large number of users.

A large number of highly sticky users and attention is the prerequisite for Kuaishou Technology's business realization. Similarly, in the early days of commercialization, Kuaishou Technology's valuation was based on the size of users and the length of use. By the third quarter of 2020, Kuaishou Technology had 482 million monthly active users, and the average number of daily active users was close to 85 minutes.

Compared with Douyin, although Kuaishou Technology lags behind Douyin in the number of monthly active users and use time, Kuaishou Technology has a strong social atmosphere, and the mutual attention and comment interaction among users are significantly higher than Douyin. The fundamental reason lies in the different tonality of the two platforms. Douyin's pursuit of "popular style" videos makes users "addictive", while Kuaishou Technology pays more attention to user relationships and interactions.

In this way, two advantages of Kuaishou Technology users must be taken into account in the valuation: 1) the stickiness of social relations is higher than that of simple content consumption. 2) trust, strong interaction between users, capable people set up advertising and e-commerce business.

In terms of increment, Kuaishou Technology has made a breakthrough in content and distribution form, and the follow-up may infiltrate into high-line cities and southern regions. But considering that the total user ceiling of short videos is around 900m, and competitors such as Douyin and video account are coming, it is very likely that Kuaishou Technology's user growth will slow down year by year, reaching about 700m by 2024.

2) Live broadcast service

The live broadcast business was the core revenue source of Kuaishou Technology before, mainly the familiar live broadcast gift reward, which can be understood as a kind of "human consumption" of Kuaishou Technology old iron. Kuaishou Technology made a profit from the reward gift of fans. From the live broadcast type, mainly to "sell people set" show live and game live. Based on a huge base, Kuaishou Technology is currently the largest live broadcast platform in the country.

However, from the perspective of development prospects, the ceiling of Kuaishou Technology live broadcast reward business is still relatively obvious. Judging from the historical data, Kuaishou Technology's live broadcast business is mainly driven by the scale of users, and the reward amount of a single user has basically not increased in the past three years.

In addition, compared with YY, HUYA Inc. and other platforms, Kuaishou Technology's live broadcast single user amount has been much higher than the average, the future growth ceiling is limited, and even has the risk of decline. The main downside risk may come from the fact that the anchor no longer needs to buy traffic through the "list" and instead buys the exposure of public domain traffic directly from Kuaishou Technology, thus turning it into online marketing revenue.

Based on the above two points, we predict that Kuaishou Technology's live broadcast business is mainly driven by the growth of the size of users, the revenue of a single user has basically peaked, and the growth rate of follow-up live broadcast business has gradually declined.

3) online marketing

In the medium term, the advertising business is Kuaishou Technology's strongest commercial engine. The biggest logic is that Kuaishou Technology has occupied a large enough user traffic and time, and advertising marketing is the most direct way of realization.

Kuaishou Technology was very conservative in the advertising business before, but now he has put online marketing in a very important strategic position. From the perspective of advertising space, Kuaishou Technology's previous double-row video selection interface, in which users can choose whether to click into the information flow advertisement, while the new version of Kuaishou Technology introduced an auto-playback waterfall stream such as Douyin, which naturally improves the loading efficiency of advertisements and will release a large number of advertising supply capacity.

From the perspective of advertisers, Kuaishou Technology is gradually getting rid of the label of "earthy taste" and "sinking", and Kuaishou Technology's rapid development of e-commerce business has proved the purchasing power of Kuaishou Technology users. It can be predicted that there will be more brands with more paying power in the future.

From the ceiling point of view, Kuaishou Technology's single user (monthly active users) advertising marketing is still far lower than Douyin. If we use Douyin's average advertising revenue of 100 yuan per user in 2019 as the ceiling for nearly three years, Kuaishou Technology's advertising revenue of a single monthly active user will at least triple, thus driving the rapid growth of Kuaishou Technology's overall advertising marketing business.

4) E-commerce business

In the long run, e-commerce business is Kuaishou Technology's most imaginative business. Kuaishou Technology has both the advantages of live e-commerce and the trust of old iron. First of all, the model of live e-commerce has been basically verified by the market. Compared with picture and text e-commerce, it has unique advantages in promotion and interaction, and live streaming happens to be an area that Kuaishou Technology is good at.

In addition, Kuaishou Technology platform has its own social atmosphere, which makes it easier to form trust and promote transactions. According to Kuaishou Technology's prospectus, e-commerce GMV reached 204 billion yuan in the first nine months of 2020, making it the leading e-commerce platform in China in terms of transaction scale. In the supply chain, considering that Kuaishou Technology is open to cooperation with Taobao, JD.com and other platforms, the follow-up strength in the supply chain is sufficient.

From the annual GMV of monthly active users, the number of monthly active users of BABA and JD.com exceeds a few thousand yuan GMV, while Kuaishou Technology's latest figure is only more than 400 yuan. In the later stage, with the gradual enrichment of categories and the formation of user habits, it is expected to reach nearly 1700 yuan in 2024.

At the same time, assuming that Kuaishou Technology's current [other business] income comes from e-commerce, the upper limit of the current monetization rate for e-commerce business is less than 1%, while Pinduoduo's current monetization rate is 3.5%. With the gradual maturity of the ecology, the monetization rate of Kuaishou Technology's e-commerce business will gradually rise.

Second, the absolute valuation method to explore the equity value of Kuaishou Technology

Based on our understanding and research, Kuaishou Technology's revenue is expected to maintain rapid growth in the next five years, and the revenue scale is expected to increase from 39.1 billion yuan in 2019 to 201.9 billion yuan in 2024, with a corresponding 5-year CAGR of about 39%. This is mainly because Kuaishou Technology accelerates the commercialization of its traffic.

In addition, under the benchmark scenario, we believe that the reasonable equity market value of Kuaishou Technology is HK $1.4 trillion, and the corresponding core assumptions are as follows:

1) Sustainable growth rate is 3%

2) the discount rate is 7%

3) the income tax rate is 15%

4) the revenue growth rate and EBIT profit margin are detailed in the table below.

Optimistically, based on a sustainable growth rate of 3.5% and a discount rate of 6.29%, Kuaishou Technology's equity value is expected to reach HK $2.1 trillion.

Under the pessimistic valuation, that is, based on a sustainable growth rate of 2.5% and a discount rate of 8.29%, Kuaishou Technology's equity value will still reach HK $1.1 trillion.

To sum up, Kuaishou Technology's reasonable equity value ranges from HK $1.1 trillion to HK $2.1 trillion.

In terms of the number of subscribers, the number of people who subscribed for Kuaishou Technology through Fortune reached 206673, with a subscription amount of more than HK $42.6 billion, ranking second on the list of subscription amount and subscribers for new shares of Fortune. The subscription mood is very hot.

At one point, Kuaishou Technology rose to 266.1 per cent in the dark market of Fortune, and finally closed at HK $336.6, up 192.7 per cent from its share price. In addition, Kuaishou Technology's dark trading volume is also active. Only 30 minutes after the dark trading opened, Kuaishou Technology's turnover reached HK $500m, ranking first in the Fortune dark trading list. By the end of the day, Kuaishou Technology's total turnover had reached HK $733 million.

From the hot performance from subscription to dark market, the market is very enthusiastic about Kuaishou Technology, investors may pay more attention to the above optimistic range (1.4 ~ 2.1 trillion).

Finally, the detailed version of the valuation model report will be updated later, please look forward to it.