China's Qutoutiao soars on debut after $84m US IPO
Chinese news aggregator app Qutoutiao raised $84 million in a downsized US IPO – continuing a recent trend among Chinese tech start-ups – but then saw its stock price more than double on the first day of trading.
Having set out to sell 16 million American Depository Shares (ADS) at $7-9 apiece, the company ended up offering 12 million ADS at a price of $7, according to a filing. Domestic e-commerce giant JD.com bought 2.07 million of the shares. An additional 1.8 million could be sold if the overallotment option is fully exercised.
The stock opened at $9.10 on September 14 and reached as high as $20.39 – trading was halted four times in the first hour due to volatile price movements – before closing at $15.97, up 128% on the IPO price. Qutoutiao’s strong performance means it is now worth approximately $4.5 billion.
Chinese electric vehicle manufacturer Nio, which enjoyed a modest market debut earlier in the week following a $1 billion IPO that was also smaller than anticipated, prospered on September 14 as well. The company finished day two up 76%.
Qutoutiao was established in 2016 and achieved unicorn status in March when Tencent Holdings – which now holds a 7.7% equity stake in the company – led a $200 million Series B round 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 ($10.2 million) on advertising.
The numbers are tiny when set against Jinri Toutiao, the market leader among China’s news aggregators, which is said to have raised $2 billion last year at a valuation of more than $20 billion. Another funding round is reportedly in the works that would value the business at $70-75 billion.
Qutoutiao operates a similar business model to Jinri Toutiao 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 – claimed 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 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.
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