Short video sector ready for next breakout

Tencent eyes bigger domestic market share with its all-in-one killer app

China's white-hot short video market is poised to kick things up a notch, with WeChat－the ubiquitous messaging app of Tencent Holdings Ltd－making some substantial strides in the sector.

Allen Zhang, Tencent's senior executive vice-president who is credited with inventing the signature app, hinted the next big thing for the app would be short video functionality, through which Tencent is seeking to catch up with its peer Bytedance's Douyin.

During a 90-minute speech at the annual WeChat gathering with developers and partners last week, Zhang shared some WeChat Channels' performance data and mapped out where the function would be heading.

He said that currently some 1.09 billion users open the WeChat app on a daily basis. Among the 780 million people using the Moments functionality－a virtual space to share one's daily updates－some 100 million items now appear as video content.

"The average daily number of (video content) jumped tenfold in the past five years," he said. "So when we consider short content, we would naturally favor video content instead of short texts."

Such developments have in part sent Tencent shares to all-time high on Monday, once pushing its shares close to a $1 trillion valuation.

In a research note, Citibank raised its target price to $HK876 ($112) from $HK734, a 14 percent rise from Monday's close. Meanwhile, UBS also upped its price target to $HK830, a more than 8 percent rise from Monday's close.

Typically, users of the Channels feature scroll through an endless stream of videos or photos recommended by algorithms. Making an obscure debut a year ago, it has had a bumpy early start.

Initial difficulties included lack of quality content that failed to grab the eyeballs of spectators. The shortage of traffic, in turn, discouraged content curators from joining games, thus forming a seemingly vicious circle.

As Zhang recalled, the real game-changer came in May, when the team heavily focused on videos once "liked" by one's WeChat contacts."That's when we realized at least at the early stage, friends' recommendations are much more convincing than machines."

Such an adjustment is also viable thanks to WeChat's strong social gene that sets itself apart from rival services like Douyin or Kuaishou. The latter pair normally relies on machine learning to judge one's predispositions and pushes relevant videos accordingly.

"This is the right gameplay given that WeChat's already being late to the game," said Cao Lei, e-commerce research director at the Internet Economy Institute."You need a new logic to play catch-up and overtake."

Zhang did not disclose the latest daily active users of Channels. In June, the number reached 200 million.

"Currently the ratio of friends' liked content to algorithm-recommended content is two-to-one," he said."Ideally, I am looking for a ratio of one-to-five."

A number of new functionalities have recently been upgraded, including connecting Channels account with the traditional, text-focused public account, as well as allowing users to scout for nearby livestreamers.

"The livestreaming function has huge potential especially in drawing organizations and enterprises to set up their dedicated Channels account," according to a WeChat analysis report by Chinese new media consultancy Newrank.

For instance, automaker Geely unveiled a new vehicle model in a livestreamed session via Channels in November, and smartphone maker Huawei used its Channels vehicle to broadcast a new phone launch event last month.

But not everyone is as optimistic. Maggie Wang, president of data marketing technology firm Miaozhen Systems' business intelligence and analytics unit, said the bonus will fade away soon as more players delve into the WeChat Channels game.

She also pointed to the temporary lack of appeal of content published on Channels among the younger generation.