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On Friday, the second-largest short video platform Kuaishou$KUAISHOU-W(01024.HK) plummeted by 5.42%.
As for the reasons, I personally believe there are two main aspects.
First, Tencent$TENCENT(00700.HK) introduced a gift-giving feature in its mini-shops.
On Friday, affected by this news, Tencent surged, while Alibaba$Alibaba(BABA.US), JD.com$JD.com(JD.US), and Kuaishou plummeted.
This gift-giving feature allows users to send gifts to friends in Video Account mini-shops, except for jewelry and education categories, with a price cap of 10,000 yuan.
This feature indicates Tencent's experimentation with video-based e-commerce.
Coincidentally, Kuaishou operates in video-based e-commerce, and the market reacted negatively without clear reasoning.
However, I believe the gift-giving feature is merely an extension of Tencent's Video Account functionality, not a serious push into e-commerce.
Many younger readers may not know this.
Over a decade ago, when Alibaba's Taobao was at its peak, Tencent aggressively entered the e-commerce space with Paipai.com, which mimicked Taobao's interface and features.
However, it ended in failure, and Tencent eventually sold its e-commerce business to JD.com.
This shows that Tencent's social DNA is fundamentally different from e-commerce. Having learned from this, Tencent is unlikely to repeat the same mistake.
Therefore, the gift-giving feature is just a supplementary addition to Video Account and won't significantly impact Kuaishou, Alibaba, or JD.com.
After Friday's drop, Kuaishou finally filled its previous gap, with a current PE of just 11x.
Looking at this valuation differently:
If you believe Kuaishou's profit CAGR over the next three years can exceed 11%, then it may be a bargain now.
In Q1, Kuaishou's adjusted net profit surged over 100x YoY to 4.39 billion yuan, growing over 10,000%. In Q2, adjusted net profit rose 73.7% YoY to 4.68 billion yuan. In Q3, adjusted net profit grew 24.4% YoY to 3.9 billion yuan.
Although Kuaishou's profit growth is slowing quarter by quarter, an 11% CAGR is still manageable for a high-margin company with competitive advantages.
On Friday, I bought a small position in Kuaishou, though I don't plan to hold it long. While the gift feature won't hurt Kuaishou's e-commerce, Tencent's increasingly robust Video Account functionality poses a bigger threat.
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