Chinese news aggregator Qutoutiao preps for US offering

The company was established as recently as 2016 but it has already achieved unicorn status, with Tencent Holdings leading a $200 million Series B round in March at a valuation of $1.6 billion. Shunwei Capital, CMC Capital Partners, Advantech Capital, Redpoint China Ventures, China InnoVision Capital, Shanghai Chuangban Investment Management, and Lighthouse Capital Group also participated.

CMC Capital and Redpoint both contributed capital to Qutoutiao’s $42 million Series A in 2017. The company’s draft prospectus also discloses a Series C round completed in August, which saw an unnamed Chinese real estate developer and the online portal of People’s Daily invest $77 million. The real estate developer also committed to spend up to RMB70 million on advertising.

The numbers are tiny when set against Jinri Toutiao, which is said to have raised $2 billion last year at a valuation of more than $20 billion. It was reported this week that another funding round is in the works that would value the business at $70-75 billion.

Qutoutiao operates a similar business model to its larger rival based on extracting content from blogger and media outlets and using artificial intelligence technology to create personalized news feeds. However, the company focuses on entertainment news and short-form videos – as opposed to Jinri Toutiao’s broader offering that ranges from economic analysis to celebrity news – and primarily targets third and fourth-tier cities.

“Chinese internet companies are paying more attention to lower-tier cities because the mobile app penetration rate is relatively low in these cities. The supply of content is limited, despite strong demand, and Qutoutiao quickly seized this opportunity by offering casual and entertainment focused content,” Peter Li, a managing director at CMC Capital, told AVCJ in March. “As such, there isn’t much user overlap between Toutiao and Qutoutiao.”

Qutoutiao – its name means “fun headlines” in Chinese – claims to be China’s second-largest mobile content aggregator with an average 48.8 million monthly average users and 17.1 million daily average users in July 2018. The company encourages user loyalty by awarding digital coins to those that share Qutoutiao content and refer new users. These coins translate into trivial monetary amounts – which can be spent on paid content or online games – but they are seen to have lowered user acquisition costs.

Approximately 5.9 million pieces of content were added to the platform in June, out of which 2.9 million were videos. These were sourced from professional media under licensing arrangements or uploaded by more than 230,000 registered freelancers. Qutoutiao plans to diversify into literature, casual games, live streaming, and animations and comics.

Revenue came to RMB517.1 million ($78.1 million) in 2017, up from RMB57.9 million the previous year. For the first six months of 2018, it reached RMB669.9 million. The vast majority of this revenue comes from advertising services, although the company wants to identify additional monetization opportunities as its user base and content formats expand.

Qutoutiao’s net loss grew from RMB10.9 million in 2016 to RMB94.8 million in 2017 and then RMB514.4 million in the first six months of 2018.

Eric Tan and Lei Li, the former Shanda Games executives who co-founded Qutoutiao and now serve as chairman and CEO, respectively, together own 49.2% of the equity and they will have a majority voting interest on listing due to the dual-class share structure. Tencent has a 7.8% stake. The size and pricing of the offering have yet to be determined.

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• Topics
• Greater China
• IPO
• Technology
• Media
• Tencent
• China
• China Media Capital
• Shunwei Capital Partners
• Redpoint China Ventures
• Advantech Capital
• TMT