Kuaishou is one of the biggest short video platforms in China. In 2021, Kuaishou made two rounds of organizational restructuring to optimize efficiency in June and September. The company made significant improvements in user growth and retention, commercial ecology, overseas, etc., and is expected to achieve a decrease in the sales expenses ratio while the number of users increases. Currently, it is at the bottom of the valuation range. In 2021-2023E, we expect Kuaishou to achieve revenue of 79 billion yuan, 10.5 billion yuan and 126.7 billion yuan, up 34%, 27% and 26% respectively over the previous year. Adjusted net profit was -20.6 billion yuan, -14.1 billion yuan and -3.6 billion yuan respectively.
Short videos are a good racetrack: from graphics to video, they are the general trend, but winners don't take it all. Graphics to video, people looking for content to find people determine trends. Short videos contribute mainly to the increase in mobile internet time. Algorithms+operation+commercialization build platform barriers, but currently it's not winner-take-all. Focusing on different creators and users, different algorithms and operating strategies determine the different tonalities of the content community. The WeChat video account originated from an ID system that strengthens the social relationship chain, but community and media attributes need to be improved; Douyin is strong in public traffic, strengthening the media's weak community; Kuaishou's dual-column content distribution logic guides users to form an old iron cultural circle that focuses on “people”, and the media attributes of the strong community improved after the revision, paving the way for the introduction of high-quality celebrity and guild content. Public domain traffic is parallel, and commercialization is speeding up.
The basic market of Kuaishou's 200 million old railway is stable, and the logic of securing private domain and expanding public domain has not changed. After the short video was generalized in '19, Shakuai's portrayal was similar, but there was still a clear difference in community tone, mainly because of the obvious differences in community seed users at the end of '17. Kuaishou seed users (that is, old railway users) have a high share of the sinking market, their willingness to spend online is low, and TGI's high interest points and distribution cities are also clearly different from Douyin. Despite the generalization of users, comparing the high TGI tags in '21 and early '18, we found that Douyin and Kuaishou still maintained a high level of similarity with those in '18, indicating that community seed users had a profound influence on community culture, so we expect 200 million old railway users to remain highly sticky for a long time after the platform reduces incentives. Furthermore, after Kuaishou 8.0 was upgraded, Kuaishou's control over in-site traffic was strengthened. After strengthening content operations, user time and stickiness continued to increase, and commercialization accelerated.
Live streaming has stabilized, advertising systems have been iteratively upgraded, e-commerce is empowering brands to improve their ecology, overseas strategies have been adjusted and contracted, and the cost rate of sales is expected to decline, creating room for profit release. (1) The live streaming ecosystem is the foundation of Kuaishou's private domain ecosystem, and is expected to stabilize in the medium term. (2) Kuaishou expanded public traffic separately, and there were 3 positive changes in '21:1) Compared with the beginning of '21, the richness of advertising tools increased and the services provided to brands increased; 2) the platform found brands and industries suitable for itself, and the proportion of brand advertising continued to increase; 3) the sales staff team expanded. According to neutral estimates, the value of a single user increased to 0.35 yuan, advertising revenue space of 89.4 billion yuan, and the profit margin of Facebook, Baidu, Weibo, etc. during the mature advertising period was 28-32%. (3) Kuaishou e-commerce is still expected to maintain high growth in fierce competition. The AAC of Kuaishou e-commerce is about 200 million yuan, and the unit price of Kuaishou e-commerce is about 3,250 yuan. Compared with other traditional shelf e-commerce, there is still a lot of room for improvement in Kuaishou e-commerce. Mainly by increasing the supply on the product side, introducing more brands, while providing more services to brands, a better e-commerce environment.
First coverage, giving a buying rating. In 2021-2023E, we expect Kuaishou to achieve revenue of 79 billion yuan, 10.5 billion yuan and 126.7 billion yuan, up 34%, 27% and 26% respectively over the previous year. Adjusted net profit was -20.6 billion yuan, -14.1 billion yuan and -3.6 billion yuan respectively.
The difference in single-user valuation of Internet platforms depends on user growth potential, LTV, and user stickiness; PS depends on revenue growth rate and profit margin expectations. Considering Kuaishou's large number of users, stronger commercialization capabilities than Station B, and still in a high growth stage, we expect Kuaishou's revenue in 2022 to be 10.5 billion yuan. Currently, Kuaishou's PS 2.8 x in '22 is given a target PS 4.6x for 2022, corresponding to the target market value of 466.8 billion yuan in 2022, corresponding to HK$572.1 billion. There is still room for 66% increase compared to the current market capitalization. First coverage, giving a buying rating.
Risk warning: Risk of further tightening of industry policy regulation; increased risk of competition; product performance falls short of expected risk; user growth rate falls short of expected risk.