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China Video App Seeks Funds at $25 Billion Value Before IPO

Crystal Tse and Lulu Yilun Chen
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China Video App Seeks Funds at $25 Billion Value Before IPO

(Bloomberg) -- Chinese startup Kuaishou is considering a U.S. initial public offering to bankroll its expansion in short videos and fend off competition from TikTok-owner ByteDance Inc., according to people familiar with the matter.

The company, backed by Tencent Holdings Ltd., plans to list next year, the people said, requesting not to be named because the matter is private. One person said Kuaishou also weighed the option of going public this year. The video startup is raising more than $1 billion at a $25 billion valuation in a pre-IPO round mostly from Tencent, one of the people said.

Kuaishou is an important part of Chinese social media giant Tencent’s strategy to compete against ByteDance, now the world’s most valuable startup. Tencent has devoted a lot of resources toward building a library of short and mini video offerings -- key to retaining user attention and boosting advertising revenue -- but has yet to catch its rival.

“Tencent’s biggest enemy is ByteDance right now,” said David Dai, a Hong Kong-based analyst at Bernstein. “Tencent hasn’t been very successful in short videos in the past, so resorting to investing in other companies instead is its best option.”

U.S.-listed shares of some of Kuaishou’s competitors fell. Momo Inc. fell 2.8%, the most in more than a week, while DouYu International Holdings Ltd. fell 1.9%, the most in about a month. Both under-performed the Nasdaq, which rose 0.3%.

Read more: Tencent Tumbles After China’s Slowdown, ByteDance Hit Ad Sales

Tencent President Martin Lau said during an August earnings call that short and mini videos would be a key vertical for expansion.

Kuaishou or “fast hand” first established its popularity among users in China’s smaller cities and rural areas, with people streaming slices of everyday life from harvesting corn to slurping noodles. It’s also been luring users in bigger cities and expanding its content to include everything from people playing video games to teenagers lip-syncing songs.

Kuaishou was seeking funds in January last year at a valuation of $17 billion. The eight-year-old company, which was valued at $3 billion in January 2015 by CB Insights, also counts Sequoia and Morningside Group Holdings as backers. It had 110 million daily active users as of December 2017, according to its website. Annie He, a spokeswoman for Kuaishou didn’t respond to requests for comment. Tencent declined to comment in an emailed statement.

“Kuaishou is the only one that can still counter ByteDance now,” Dai said.

(Updates with shares from the fifth paragraph and adds chart.)

To contact the reporters on this story: Crystal Tse in Hong Kong at ctse44@bloomberg.net;Lulu Yilun Chen in Hong Kong at ychen447@bloomberg.net

To contact the editors responsible for this story: Peter Elstrom at pelstrom@bloomberg.net, ;Fion Li at fli59@bloomberg.net, Colum Murphy, Edwin Chan

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