Kuaishou Cofounders Suffer $3 Billion Wealth Wipeout Amid Surging Costs And Widening…

Su Hua saw his wealth drop $1.7 billion in just one day after his video platform Kuaishou Technology reported that its core business experienced a decline in revenue as expenses rose in the first quarter.

Shares in the Hong Kong-listed company tumbled 11.5% Tuesday, extending this year’s decline to 50% after reaching a peak in February of HK$418. Kuaishou had raised $5.4 billion through its initial public offering that same month.

Su, who is the company’s cofounder and CEO, has a 12% stake in Kuaishou. Cheng Yixiao, a fellow cofounder who is responsible for product development, owns 9.4% of the company’s shares. His wealth dropped $1.3 billion on Tuesday.

Beijing-based Kuaishou, a smaller rival to Zhang Yiming’s ByteDance, said that its 520 million monthly active users in China are spending less on tips or virtual gifts for live streamers hosted by the platform. Sales at the company’s live streaming business unit, which constitute 42.6% of total revenues generated during the first quarter, declined 19.5% to 7.3 billion yuan ($1.1 billion) from the same period a year ago.

In a stock exchange filing, Kuaishou attributed the lackluster performance to easing quarantine measures that saw people spending less of their time online following the lifting of strict lockdown rules.

Kuaishou has also been contending with rising costs. Its selling and marketing expenses jumped 44% year-over-year to 11.7 billion yuan, which accounted for 68.5% of total revenues. The rise in expenses comes at a time when Kuaishou is faced with intensifying competition.

Aside from ByteDance’s short video platform Douyin, Kuaishou’s rivals, which span from web giant Tencent to smaller site Bilibili, are all upping the ante. For example, Tencent’s WeChat messaging service, which now has more than 1 billion users at home, is letting people view more clips uploaded by companies, influencers and each other.

Kuaishou is making up for the revenue losses mainly through advertising. Its first quarter revenues grew 37% to 17 billion yuan, thanks to ad sales that more than doubled to 8.6 billion yuan. It is also experimenting with e-commerce, allowing influencers to sell via the platform some of the products that appeared in their live streams or video clips. This business grew 589% to generate 1.2 billion yuan in revenue. Losses for the period widened to 57.8 billion yuan, up from 30.5 billion yuan a year ago.

Although the company is able to find growth, investor sentiment is unlikely to be lifted due to aggressive spending, says Ke Yan, head of research at Singapore-based DZT Research. Shifara Samsudeen, an analyst at Tokyo-based LightStream Research, has a similar view.

“Though Kuaishou’s diversified revenue mix (which is shifting towards online ad and e-commerce) helps absorb the decline in its core live streaming revenues, given the intense competition in the online advertising and live streaming markets (including live streaming e-commerce) in China, we would be reluctant to make an entry despite the drop in Kuaishou’s multiples,” she writes in a research note published on Smartkarma.

The company isn’t without other bright spots, though. It is venturing overseas, where it has attracted 150 million monthly active users with its Kwai and SnackVideo apps.

“South America and Southeast Asia are the key regions we have targeted in our international expansion,” the company said in the aforementioned filing. “From the initial steps, we are thrilled to see real potential for our business model and ecosystem outside of our domestic market and it is after all, from tiny acorns that mighty oak trees grow.”