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Unit Economics For Streaming on Kuaishou

As of Feb 2021,

For independent individuals – 40% of gross value of virtual gifts, when tax withheld is 20%

Streamers = 40%

Streamer’s tax withheld by Kuaishou = 10%

Kuaishou = 50%

For streamers under a “family/union” – varies.

Unions can set the sharing ratio to between 35% and 50%.

For example, if the ratio is set at 40%, and tax withheld is 0 (to simplify)

Streamers = 40% (certain tax should be withheld)

Union = 10%

Kuaishou = 50%

In addition, Kuaishou gives back additional revenue-sharing (“bonus”) as incentive if certain growth/active targets are achieved, up to 12% of gross value (after-tax I assume).

The larger the union, the higher basic bonus (up to 2%) it can get. Active bonus (1%) requirement is a bit higher for larger union. Growth target is lower for large unions. Growth bonus is tiered and every union can potentially get the full 9% growth bonus.

Therefore, if a union get say 5% bonus, following the previous example, then

Streamers = 40%

Union = 15%

Kuaishou = 45%

Unions can set certain bonus internally for streamers, and often provide a base pay + % commission model for streamers.

We could see from Kuaishou’s reported financials that after deducting “revenue sharing to streamers and related taxes”, Kuaishou retains a bit over 40% of its live-streaming revenue.

Two Steps For Video Platforms To Stand Out

There are two strategic offerings that drive the organic growth of Kuaishou, Douyin and Bilibili, which also differentiate them from the others:

1/ an easy-to-use video editing tool that is actually empowering users

2/ a marketplace (e.g. ads, e-commerce) for users/MCNs to monetize. One key difference is that: it is not for platforms to sell ads. Platforms are just operating the marketplace.

Video editing tools

– Kuaishou introduced Kuaiying (Kmovie) in 2017

– ByteDance/Douyin introduced Jianying (CapCut) in Jun 2019

– Bilibili introduced Bijian (bcut) in July 2020

Marketplaces

– Kuaishou upgraded the exchange as 磁力聚星 Magnetic Star, part of the 磁力引擎 Magnetic Engine

– ByteDance upgraded the website to 巨量星图2.0 in 2020

– Bilibili launched 花火 Huahuo in July 2020

Those are all similar – marketplaces for brands/agencies + influencers/MCNs

Tesla Bought $1.5 Billion Bitcoin

On Monday, Feb 8, Tesla announced it bough $1.5 billion bitcoin and would accept it as a payment method soon.

A few takeaways:

1/ There will be more companies using bitcoin to manage their cash, adding to the demand for it.

2/ Bitcoin as a payment method will be more mainstream. Now people not only can rely on selling it to the market, but maybe can buy a Model Y. The future question would be – what will the “economy” look like on Mars? I bet Bitcoin will be important.

Questions remain –

How Tesla is gonna price its cars? in fixed Bitcoin? that will cause a collision with USD, etc. as Bitcoin is volatile on a daily basis.

JOYY After Sale of YY

JOYY (NASDAQ: YY) just announced on Feb 8 that “The sale by JOYY Inc. (“JOYY” or the “Company”) of its YY Live business to Baidu, Inc. is substantially completed”.

Without the China business, YY = BIGO, which has BIGO Live and Likee.

More importantly, investors are only valuing the BIGO Live business, while Likee is like a “bonus”.

To be more specific,

1/ BIGO is undervalued

JOYY has ~81 million ADS -> $9.7 billion market cap at $120 per ADS.
It also has some $3.5 billion cash/short investment and $1 billion convertible bond (conversion price 95.5 and capped at 127.87).

The sale price of YY China business is $3.6 billion.

JOYY still has 68.4 million Huya shares, which is worth ~$1.6 billion at $24 per share.

Therefore the enterprise value for BIGO is around $2.4 billion.

BIGO Live is a live streaming business with RMB 3.4 billion revenue in Q3 2020, so around $2.1 billion annually.

That is 1.1x sales multiple! Usually live streaming virtual gifts could be valued at 2-3x revenue.

Room to double!

2/ Market is not even valuing Likee, which is a legit business with 104 million MAUs in Q3.

Likee is popular. Some may even compare it with TikTok. The recent decrease is due to the ban in India but the rest of the growth will be fine.

3/ JOYY will become an true international company, and is poised to operate in a more flexible global manner, which should benefit its ex-China strategy.

Kuaishou Valuation

So the competitor of Douyin (TikTok) in China, Kuaishou (HKEX: 1024) just went IPO this week, now valued at ~$160 billion.

It’s a well-known app in China – with the current market sentiment, hypes around video-based social platforms, I should say I am not surprised about the valuation.

Here I provide one way to look at Kuaishou’s valuation:

Q3 revenue is ~$2.4 billion:

1/ ~50% comes from live-streaming (virtual gifts).

2/ The rest is from ads and e-commerce. I categorize them as “good” revenues that are fast growing (+200% yoy for ads) and stable.

For the first part, virtual gifts, we can use Huya (most revenue is from live-streaming) as a comp – about 3x annualized revenue.

For the second part, we can compare it with Snap, which trades at 25x annualized revenue. Kuaishou’s ads business (~$900 million in Q3) is at the same scale as Snap and grows faster – so some can argue to use 30x.

Therefore,

Kuaishou = virtual gifts business x 3 + ads & other business x 30

As virtual gifts is 50% now, we are talk about 16.5x revenue as a whole.

Annualize it: $2.4 billion x 4 x 16.5 = $158.4 billion

Virtual gifts business is debatable – while it’s 50% of revenue, it accounts for less than 20% of Kuaishou’s value if we use the above framework. So change it from 3x to 2x or 1x won’t affect much actually.

Deloitte and McKinsey

Institutions need some extra efforts to win trust…

  • McKinsey has agreed to pay $573 million to settle over its role helping to market and boost sales of high-risk opioids including OxyContin.
  • Deloitte China is now dealing with scandals exposed by a young employee, over illegal/unethical auditing practices by other employees between 2016-2017. You may find this organized presentation (in Chineses) here 德勤举报PPT.

Big corporations or respectful big names are never the “guarantee” of high standard.

They need to be more self-aware before any “systematic failure” might emerge.

Clubhouse Revenue (?)

Clubhouse is a $1 billion business with 2 million weekly active users (as of Jan 2021).

Despite the exploding user count, it appears to have zero revenue now.

Clubhouse mentioned three business model:  tipping, tickets and subscriptions (therefore, no ads – good!).

1/ tipping – it’s an established model in Asia but don’t think it will work well in the US. If rolled out, it will be on a smaller scale and shouldn’t be the main source of revenue, unless it incorporates cryptocurrencies like Dogecoin!

2/ tickets – I think this can work but it’s not sexy. It makes the app more “administrative” and ordinary. Also, eventbrite works well with some 2.5%+ fees.

3/ subscriptions – this sounds interesting and may leapfrog podcast subscription model. Another layer of curation can be added, which Clubhouse might have been working on).

Clubhouse may also think about adding features to be more relevant on a daily basis, than monetizing the app right now.

Spotify management should be worried.

Social medias should be worried too.

Alibaba Cloud in 2020 = AWS in 2015

Amazon and Alibaba posted their earnings for the last quarter of 2020 on Tuesday.

I made two charts that I believe will be interesting.

1/ AWS’ amazing growth and operating income

2/ Ali Cloud growth from 2016 to 2020, followed by AWS revenue 2016-2020

In another word, I am using AWS’ past performance as Ali Cloud’s revenue projection.

This graph looks smooth!

In another word, Ali Cloud is 5 years behind AWS in terms of revenue (or cloud adoption in China is 5 years behind)

One more thing, Ali Cloud just turned profitable this quarter (Dec 2020) in the adjusted EBITDA level.

The Stories Behind RH

RH (NYSE: RH), known as Restoration Hardware, is kind of hot.

Its stock price is more than doubled in 2020 and increased by more than 5x from its March bottom.

What has changed?

1/ as the pandemic hit, people spend more time at their places – meanwhile they spend money to renovate their places.

2/ wealthy people can’t travel and don’t have much ways to spend – new luxury furnitures spending fulfills some of those void!

3/ RH is now a brand/lifestyle. It’s not just furnitures – RH has restaurants, plans to open hotels.

To put those in chart.. (light blue line is Wayfair and pink line is Hermès)

Wayfair = furniture website

Hermès = luxury brand

GameStop Is Like A Soros Play

A week of blogs about GameStop – why not.

Reflecting on the GameStop mania, I feel it’s more like a macro trade, e.g. how Soros broke Bank of England in 1992.

1/ hedge funds are like the role of Bank of England facing Soros (retail investors, etc.). It’s almost certain that they cannot cover the shorts in the near term – just like BoE couldn’t support fixed exchange ratio.

2/ HFs didn’t realize that reflexivity is so important… they are analyzing the company as if they are the outsiders. But as people realize their short/put positions, they can support both GamStop’s real business and its stock. HF’s participation changes the real world itself. Also, people’s decision of holing GME stock also changes their purchasing behaviors.

3/ social medias (reddit, twitter trending, etc.) are now playing a role like Draghi’s “whatever it takes” speech. When expectation is set, people’s decision change as well – it becomes self-fulfilling.