The share price of Chinese Tiktok rival Kuaishou tripled today after the video-streaming app debuted on the Hong Kong stock exchange. The listing, the largest technology float since Uber’s $8 billion public bow two years ago, raised $5.4 billion. The rapid retail investor-fuelled rise in its valuation during Kuaishou’s first day as a public company is the latest sign of a seemingly insatiable hunger for high-growth internet-economy stocks.
The Kuaishou share price hit an interday high that assigned the technology company a valuation of over $180 billion after shares rose by almost 200%, having already started the day well up on the IPO pricing. The surge in valuation means huge paper returns for the company’s founders, senior management and employees and investors, which include Chinese internet giants Tencent. Tencent owns 18% of the company.
However, the remarkable debut will do little to quell fears of an internet stocks bubble. On Wall Street, tech sector debutants Airbnb and Doordash also saw their share prices skyrocket on their first days of public trading. Those rallies were also fuelled by enthusiastic retail investors who hadn’t been able to participate in the IPOs, which were largely restricted to retail investors.
Many analysts expected both the Airbnb and Doordash valuations to correct after such huge initial gains (Airbnb’s share price opened at more than double its IPO price and ended the day up 112% and Doordash gained 85% on its debut) but they’ve since increased their value. Despite the fact Airbnb’s business is practically moth-balled as a result of the Covid-19 pandemic and Doordash is still loss-making.
Some analysts are convinced the valuations of numerous newly floated tech companies, and especially those of the biggest names, have reached levels hard to justify by traditional performance metrics. Even taking into account future growth prospects.
Kuaishou, which was founded in 2011, is the main rival of Douyin, the brand Tiktok goes under on its home market of China. The company’s social media app started life letting users create and share Gifs and animated images on smartphones. However, by 2012 Kuaishou had pivoted into becoming a video-sharing app with notable commonalities with Douyin, which is branded in the west as Tiktok.
Last year former U.S. president Donald Trump tried to ban Tiktok from the USA on accusations of security concerns. There were suspicions his stance on the Bytedance-owned app was more motivated by its position as the first Chinese app to go genuinely viral internationally and in the USA than a genuine security threat to users and the state. Bytedance is also thought to be considering a Hong Kong listing for Douyin.
Kuaishou rivals Douyin/Tiktok by virtue of it holding the position of the world’s second most popular short video sharing and view platform. Its IPO prospectus said it averaged 276 million active daily users as of last September. Lockdown restrictions keeping people at home has, as is the case for many digital entertainment and communication companies, boosted Kuaishou’s figures over the past year. The company’s monetisation model is selling virtual gifts for users to give to creators in appreciation of their contributions, as well as more traditional digital advertisement and acting as an affiliate to ecommerce businesses.
After the surge in Kuaishou’s valuation earlier today, the 12% stake of co-founder and CEO Su Hua is now worth a heft $21 billion. The company’s other co-founder Cheng Yixiao now has a stake worth $17 billion. As is becoming a trend in tech IPOs, the pair retain a controlling stake in the company despite owning far less than 51% of its equity by virtue of enhanced voting rights attached to their stock which gives each share ten votes. Ordinary shares carry a single vote each.
Kuaishou’s stunning debut was, reports Reuters, driven mainly by retail investors taking long CFD positions in the stock. CFDs are financial derivatives based on ‘borrowing’ actual shares in the hope of profiting from a share price difference on their returned. CFD positions in instruments typically use leverage, which multiplies profits, but also multiplies losses if the trader gets the share price direction wrong.
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