Short-video giant Kuaishou expects to break even in 2022 but China is tightening control on live streaming

Kuaishou Technology, operator of China's second-largest short video-sharing platform, hopes to break even this year, but regulatory risks remain high as Beijing released new restrictions on live streaming.

On Tuesday, Beijing published new guidelines to "further regulate profit-making practices in live streaming and promote the healthy development of the industry".

Under the new rules, companies will need to report to provincial tax and cyber authorities the basic information of live streamers who make a profit on their platforms, including personal ID and income type.

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The guidelines - jointly issued by the Cyberspace Administration of China, State Administration of Tax, and State Administration for Market Regulation - also prohibit exaggerated or misleading marketing practices in live streams. Live streamers who discuss price comparison of products in videos should also show their advice in text to better protect consumers, authorities said.

The move comes as tax authorities have ramped up efforts to regulate the live-streaming industry. Viya, one of China's top influencers, was fined 1.3 billion yuan (US$204 million) in December for tax evasion.

Shares of Hong Kong-listed Kuaishou, which reported solid financial results for 2021 a day earlier, opened 8 per cent higher on Wednesday. The early gains were wiped out by noon, however, after The Wall Street Journal reported that China may cap the amount of digital tipping that live streamers can receive to 10,000 yuan a day.

The Cyberspace Administration of China and six other government agencies issued guidelines last year that require internet platforms to put a reasonable limit on digital tips that internet users can give out. At the time, authorities did not provide a specific monetary limit.

A cap on digital tips would deal a heavy blow to the business of video platforms such as Kuaishou, which take a cut from the amount that viewers give to influencers. The Beijing-based company, along with TikTok's domestic version Douyin, is already subject to a slew of live-streaming restrictions.

Last August, China's Ministry of Commerce released draft regulations that spelt out items that could no longer be sold in live streams, including sex toys, spy devices, foreign newspapers and medicines. Earlier this month, a new regulation designed to control the use of algorithms in apps and websites went into effect.

"Kuaishou has worked hard over the last few quarters to arrest revenue declines in its live-streaming business," said Michael Norris, research and strategy manager at marketing firm AgencyChina. "Potential restrictions on tipping endanger this recovery."

"However, it's important to note that Kuaishou's revenue mix is shifting, and it's less reliant on the live-streaming business compared with a year ago," Norris added.

In the fourth quarter last year, live streaming accounted for 36.1 per cent of Kuaishou's revenue, while online marketing services contributed 54.2 per cent. Revenue increased by 35 per cent to 24.4 billion yuan from 18.1 billion yuan a year earlier.

During the same period, Kuaishou's main app averaged 323.3 million daily active users, up 19.2 per cent from 271.3 million a year earlier.

Net loss in the quarter ended December 31 narrowed 67.8 per cent to 6.2 billion, thanks to more government grants and value-added tax subsidies.

For the whole of 2021, net loss was 78 billion yuan, compared with 116 billion yuan in 2020, the company said.

Chief executive Cheng Yixiao said during the earnings call on Tuesday that the company is "very confident that [its] domestic business will deliver a quarterly adjusted net profit within 2022" and "a path is quite clear".

Kuaishou delivered one of the most impressive tech initial public offerings in Hong Kong last year, with its shares surging nearly 200 per cent from the IPO price on its debut trading day. As regulatory pressure on Chinese tech companies increased, however, Kuaishou shares have since fallen over 80 per cent from its peak.

Kuaishou shares closed at HK$73.6 on Wednesday, down more than 6 per cent.

During the worst of China's tech stock rout earlier this month, Chinese Vice-Premier Liu He chaired a financial policy meeting in which he called on regulators to adopt a "transparent and predictable" approach in overseeing the tech industry. Liu also ordered regulators to notify financial authorities before publishing any new policies.

China's live-streaming market is likely to exceed 4.9 trillion yuan by 2023, according to a report by internet consultancy iResearch last September. China currently has more than 700 million live-streaming users, according to the state-run China Internet Network Information Centre.

Still, amid regulatory uncertainties in the home market, Kuaishou is ramping up its overseas efforts. CEO Cheng has directly taken the reins of the firm's international business after Chou Guangyu, the executive in charge of foreign operations, resigned earlier this month citing personal reasons.

This article originally appeared in the South China Morning Post (SCMP), the most authoritative voice reporting on China and Asia for more than a century. For more SCMP stories, please explore the SCMP app or visit the SCMP's Facebook and Twitter pages. Copyright © 2022 South China Morning Post Publishers Ltd. All rights reserved.

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