Qutoutiao Loans USD 171 Million Convertible Notes from Alibaba
COVID-19 and China
Qutoutiao went public. Picture credit to EO

On March 28th, Qutoutiao (趣头条) issued USD 171 million convertible senior note to Alibaba. The note will be matured in three years with an annual yield of 3%. The note can be converted to A share stock at a price of USD 15 per share totaling at USD 141 million, which is approximately 4% of Qutoutiao’s outstanding share.

Qutoutiao is a video and news aggregation content app. The company was founded in 2014 and went public in Nasdaq last year. The fast-growing startup had raised four rounds of financing series with a total amount over USD 420 million. As an internet-based company, Qutoutiao has investors from BAT (China internet giants: Baidu, Alibaba, and Tencent). Tencent participated in its series B financing in March 2018. With the join of Alibaba, Qutoutiao has allied with the AT of BAT.

Tencent has the incentive to invest in Qutoutiao if considering the change brought by internet unicorns. From the user behavior, the mobile terminal time usage has changed significantly since 2017. User’s time spent on instant message dropped but on short video and news increased comparing March 2017 to March 2018’s data.

The user time spent on short video presents a sharp growth because of the rise of Douyin (Chinese verision of Tik Tok), the short video platform of Bytedance. Bytedance’ another famous product is Toutiao, which is a video and new aggregation content platform and also the major competitor of Qutoutiao. Douyin successfully keeps users staying longer on its community and the direct effect is the drop of use time in the instant message, which is dominated by Wechat owned by Tencent.

Competitor’s competitor can be regarded as an ideal ally. It is explainable that Tencent led the series B financing in amount of USD 200 million. Toutiao is a component of Bytedance’ product ecosystem and has the ability to transfer user flows to other Bytedance products like Douyin and Watermelon Video (Xigua Video, 西瓜视频) and keep users staying in Bytedance world.

With similar consideration, Tencent’s investment helps it acquire an entrance at the content aggregator side and welcome users to stay in Tencent’s ecosystem. Qutoutiao is a content aggregator, its focus of channel penetration can assist Tencent in channel penetration as well. Its unique product function has attracted millions of users from mid-to-low tier cities.

Qutoutiao will reward cash to users if they explore the contents on its platform. The longer they stay, the larger the prize. The attraction of reward to users is out of the question, especially for users who have more spare time. According to its annual report, Qutoutiao’s average DAU (daily active user) in 2018Q4 reached 30.9 million and the total length of time spent on Qutoutiao took 1.3% of the total length of time spend by China mobile users.

Alibaba’s investment in Qutoutiao improved the completeness of its ecosystem since it does not have a famous video and news aggregator role in Alibaba family. Inversely, Qutoutiao’s product feature (cash-reward reading) can have a chance to cooperate with Ant Financial regarding the third-party payment or other financial services, which is the strength of Alibaba’s commercial empire.

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