8.5 Million ADS, Qutoutiao Needs Fuel to Run
Qutoutiao filed to US SEC regarding 8.5 million ADSs for the follow-on offering. Tencent reduced the share and Alibaba loaned USD 171 million to Qutoutiao. Qutoutiao needs money to run and eagers to root in deep in the market.
On March 30th, Qutoutiao (趣头条) filed to U.S. SEC regarding 8.5 million ADSs for the follow-on offering. The company intends to offer new 1,049,756 ADSs and 7,450,244 ADSs from selling shareholders. Qutoutiao is a video and news aggregator platform with millions of DAU (daily active users).
As revealed in the filing, Qutoutiao incurred a net loss of CNY 2,029 million (USD 295 million) in 2018. The net revenue in 2018 was CNY 3,022 million (USD 440 million) at a YOY growth of 484.5%; the gross profit was CNY 2,519 million (USD 366 million) at a YOY growth of 471.7%. Comparing to nearly 500% yearly growth in revenue, the growth of total operation expense was much higher – at a YOY growth of 739.7%.
The total operation expense’s increase is mainly attributed to sales and marketing expenses. Qutoutiao’s prevalence in lower-tier cities is because of the cash reward mechanism. The mechanism is criticized widely for splurging investors’ funding and cannot strengthen the actual bonding with users in the long run. Once stopping the cash reward, the number of users that will stay is hard to predict.
After receiving the USD 171 million convertible senior notes, the follow-on offering should be able to fuel Qutoutiao for a while. Alibaba’s investment will probably lead to a 4% share hold by Alibaba when notes matured. However, Tencent, the most famous shareholder of Qutoutiao, holds only 1.5% of the total share.
Some institutes believed the investment from Alibaba might help Qutoutiao to improve its penetration rate in new markets. Alibaba might have the intention since Qutoutiao’s target market overlaps with Pinduoduo, the new-born giant e-commerce body in China. Alibaba needs an entrance to guide Pinduoduo’s target group into its business empire, and Qutoutiao is an ideal port.
Qutoutiao has been compared with Toutiao (今日头条) since both of them are video and information aggregator. But as mentioned earlier, Qutoutiao’s target group varied from Toutiao. The latter’s users cluster in top-tier cities while Qutoutiao’s users are denser distributed in lower-tier cities.
As inclined in the filing, Qutoutiao is in progress of preparing an application for an Internet news license in China. Qutoutiao’s cooperation with Shanghai Dongfang Newspaper, a state-owned company may provide assistance in the application process. Toutiao did not release any related plans of becoming a news generator.
Qutoutiao’s focus is more concentrated than Toutiao at this point. As an influential news aggregator, being a professional news publication media is somehow amplifying the influence and help to improve its news quality.