Key Insights:
- Keep Inc.’s revenue rebounded by 3.7% in the latter part of the year, reversing a 2.7% decline in the first half due to weakening product sales
- The fitness app operator underwent significant cost-cutting measures and workforce reductions in the past year, boosting its profit margins
By Doug Young
Keep Inc., akin to a Chinese rendition of the once-popular Peloton in the U.S., faced headwinds despite a promising start post-IPO. Both companies thrived during the pandemic era, catering to health-conscious individuals restricted to home-bound routines. As communal activities resume, these companies grapple with sustaining market relevance.
In its debut annual report post-IPO last July, Keep witnessed a decline in revenue from the previous year, reflecting a shift in user preferences towards outdoor pursuits over the digital fitness offerings that once buoyed its profits. To adapt to this change, Keep is diversifying its product offerings to cater to the burgeoning outdoor-focused post-pandemic landscape.
Keep’s stock resembles a runner in need of a fresh training regimen, having plummeted more than 80% from its IPO price of HK$28.92. Such a nosedive, partly attributed to concerns over China’s economic slowdown, paints a grim picture for investors, with Keep’s P/S ratio trailing behind industry peers.
Yet, beneath the surface, Keep’s resurgence is evident in its financial data. While 2023 saw a 3.9% decline in annual revenue, detailed analysis revealed a 3.9% year-on-year revenue increase in the latter half of the year, marking a positive trajectory shift.
Challenges in Product Sales
Keep primarily relies on revenues from service offerings like videos and online classes, alongside product sales encompassing fitness equipment and apparel. Notably, product sales took a hit, declining by 16.8% as consumer preferences shifted to outdoor activities post-pandemic.
While a decline in product sales is concerning, the pivot towards service-driven revenue streams signifies a pivot towards profitability. The enhanced focus on services resulted in a gross margin improvement, underscoring the company’s strategic shift.
Efficiency optimization was a recurring motif in Keep’s 2023 performance. The company prioritized cost control, witnessed by a drastic reduction in operational expenses and headcount. Moreover, a more selective approach to user management led to higher revenue per user, ultimately mitigating losses.
Despite initial apprehensions, Keep’s financial health remains robust, boasting meager liabilities and substantial liquidity. The prudent approach to financial management positions the company well amidst China’s economic uncertainties.
Investor pessimism surrounding Keep’s prospects may overshadow its resurgence amidst industry shifts. With a low valuation relative to industry counterparts, Keep’s journey back from transitional lows signals a potential turnaround.
This article is from an unpaid external contributor. It does not represent Benzinga’s reporting and has not been edited for content or accuracy.
