Kuaishou lost $2.7 billion amid new regulation on live streaming in China

Asian Tech Press (Mar. 30) -- Chinese short video and live streaming app Kuaishou experienced shocks on Wednesday, with a loss of about $2.7 billion in market cap on the day due to the latest regulatory policies in China's live-streaming industry.

The Wall Street Journal reported Tuesday that the Chinese government is drafting new rules to limit the amount of money Internet users can spend daily on digital tipping, citing people familiar with the matter.

The report said China is planning to impose new restrictions on the country's $30 billion live-streaming industry, restraining tech companies and exerting greater influence on content consumed by its young people, as Chinese regulators worry that their desire to become social media influencers runs counter to social values.

The Chinese government plans to set a daily cap of 10,000 yuan ($1,574.8) on the amount of tips live streamers can earn from fans, and is considering stricter content censorship.

The report also noted that specific measures are still under consideration.

However, a document released by China's State Taxation Administration (STA) on Wednesday confirmed the report, requiring live-streaming platforms to report information on the personal identity and profitability of online streamers, who earn money through live streaming, to the Internet information office and tax authorities every six months in order to regulate tax management in the live-streaming industry.

In addition, the latest document from Chinese regulators does not specifically mention whether a daily cap of 10,000 yuan has been set for digital tipping.

The WSJ exclusive was issued at the same time that leading Chinese live-streaming platform Kuaishou Technology (1024.HK) released its audited consolidated financial results for the full year ending December 31, 2021.

The earnings report showed that Kuaishou's total annual revenue for 2021 was 81.1 billion yuan ($12.8 billion), up 37.9% year-over-year, beating the consensus estimate of 80.1 billion yuan in the Bloomberg market.

Kuaishou reported 31.0 billion ($4.9 billion) in revenue from live streaming in 2021, accounting for 38.2% of total revenue. In previous years, the live-streaming business has borne the main revenue needs of Kuaishou in the early stages of development, with its live-streaming revenue of 33.2 billion yuan in 2021, or 56.5%.

The earnings results also revealed that in the fourth quarter of 2021, Kuaishou's average MPUs (monthly paying users) for live streaming increased by 5.2% from the previous quarter to 48.5 million, and the monthly ARPPU (average revenue per paying user) for the business grew to 60.7 yuan ($9.6), up 8.6% quarter-over-quarter and 17.2% year-on-year.

The live-streaming business, one of Kuaishou's cash cows, is bound to suffer greatly as it faces new regulatory measures.

Affected by the news, Kuaishou opened 8% higher on Wednesday, then continued to tumble, with stock amplitude of more than 16% during the trading session, closing at HK$73.6 per share, losting about 20.9 billion Hong Kong dollars ($2.7 billion) in one day.

Kuaishou stocks on Mar. 30.

Kuaishou responded that the company has done affordable live streaming with a lower threshold, not focused on the tipping of the leading influencers, and the ARPPU is significantly lower than its peers.

"We have been maintaining good communication and interaction with regulators. At present, the company has not received any guidance or policy information from regulatory authorities explicitly on the cap of 10,000 yuan for tipping," the company added.

In a research note on Wednesday, Chinese brokerage firm Cinda Securities Co., Ltd. said, "We believe that with reference to historical experience, drawn from the WSJ's report that Tencent may be fined for anti-money-laundering violations, the WSJ rumors about Internet regulation are not very credible."

"In addition, the ARPPU of Kuaishou's live streaming business is low in the industry, only about 60 yuan in Q4 2021, far below the daily cap of 10,000 yuan," said analysts at Cinda Securities, "even if the enforcement of such a regulation, the impact on Kuaishou's live-streaming business is relatively limited."

In fact, since 2020, China has been launching regulatory initiatives related to the live-streaming industry.

In late November 2020, the National Radio and Television Administration (NRTA) issued a notice on strengthening the management of live stream shows and live commerce.

The notice requires live-streaming platforms to introduce a real-name system for live streamers and users who give donations during live streams. In particular, users who are not registered with their legal name cannot tip, nor can underage users.

In early February 2021, the State Internet Information Office (SIIO) jointly with six other government departments issued a guideline on strengthening the standardized management of network live streaming, focusing on regulating online tipping and promoting the classification and grading management of liver streaming accounts.

The document specifically pointed out that it is necessary to set reasonable limits on the total amount of donations received in a single scene, live popularity, etc. for different categories and levels of accounts, to remind users whose tipping accumulation triggers the corresponding threshold value in a single day to consume, and to set a cooling-off period and delayed payments period for digital tipping when necessary.

As an emerging way of network interaction, live streaming sprung up in 2016, attracting people of all kinds and Internet companies to enter the game, and the live-streaming industry has experienced a growth spurt.

Statistics from market and consumer data provider Statista show that there were approximately 703.4 million live streaming users in China by the end of 2021, a penetration rate of 68.2% among internet users in the Asian country.

(US$1 = 6.35 yuan; US$1=HK$7.8269 )

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