Kuaishou spent big on getting more users in 2020, but analysts say losses belie bright long term outlook

Kuaishou Technology, the operator of China’s second-largest short video app and main rival to ByteDance’s Douyin, posted a huge net loss in its first earnings report since listing in Hong Kong, but analysts said its long term outlook is still bright.

Kuaishou’s shares tumbled 12 per cent in Hong Kong on Wednesday, against a 2 per cent drop in the Hang Seng Index and a 4 per cent decline in Meituan, after it reported a loss of 116.6 billion yuan (US$18 billion) in 2020. While the figure was a huge jump from the 19.6 billion yuan loss reported in 2019, the bulk of it, or 106.8 billion yuan, was from the revaluation of preferred shares owed to investors, a financial recalculation not directly related to its business operation.

Nonetheless the results, coming two months after Kuaishou made the hottest initial public offering in Hong Kong’s history, dampened investor confidence in Chinese technology stocks on Wednesday. The stock’s closing price of HK$265 per share on Wednesday was more than double its IPO price of HK$115 but it has lost over a third of its peak value since listing.

Analysts said Kuaishou’s business fundamentals, in terms of revenues and users, still look sound even though the firm remains unprofitable.

“Kuaishou’s net loss may have spooked some investors. However, it’s important to note part of the loss is due to fair value changes in preferred shares,” said Michael Norris, research manager at Shanghai-based consultancy AgencyChina. 

Accounting practices in initial earning’s reports from Hong Kong-listed tech firms meant that losses from revaluations were common, according to Zhou Xusheng, a tech-focused fund manager at Wuyou Investment.