FUND RAISING: Wine Seller Jiuxian Dilutes, Baidu Buys Back

Bottom line: Jiuxian’s raising of a seventh funding round reflects fading investor interest in online wine sellers due to a luxury slowdown, while Baidu’s share buyback plan looks like a good use of cash to support its sagging stock.

Investors lose taste for online wine sellers

I’ve been a financial news reporter for quite some time now, but even I was surprised to read that online wine seller Jiuxian has just raised funds in a new round of G-series funding. This marks the first time I’ve seen the letter “G” in such a context, and I had to do some counting on my fingers to finally figure out the 500 million yuan ($80 million) funding round represents the seventh for this company that apparently has yet to make a profit despite so much private investment.

Baidu

Meantime, online search leader Baidu (Nasdaq: BIDU) was in a spending mode with its announcement that it would dole out up to $1 billion over the next year to support its sagging stock that plunged to a 1-year low this week on a weak earnings report. This particular use of money looks reasonable for a cash-rich company like Baidu. I do find the timing just slightly ironic, since Baidu raised $1.25 billion through a bond offer just a month ago, meaning this latest buyback will be funded by the same investors who have recently been dumping the company’s stock.  more information here

 

Baidu Company

Let’s begin our Friday funding wrap-up with Jiuxian, which was one of the early leaders in China’s fast-growing market for European-style wines. I reported on this company as early as 2011, when Jiuxian had just raised its second round of venture funding following receipt of its first round earlier that year. (previous post) That would mean the company has received another 4 rounds of private investment over the last 4 years before landing this latest G-series funding.

The latest funding round was led by Minxiang Caifu, which sounds like a wealth management firm, and no big-name venture capital companies are mentioned in the reports. (English articleChinese article) The round means Jiuxian has raised 1.4 billion yuan to date, and has a market value of about 6.5 billion yuan, or just over $1 billion. The fact that no big-name venture capital firms are investing this time means these companies probably don’t want to give Jiuxian any more money. Instead, they are probably getting tired of waiting for the company to sell itself or make an IPO so they can recoup some of their investment.

Evaporating High-End Wine Market

Jiuxian doesn’t provide any details on its revenue or profit, but does say that bottles of wine priced at 200 yuan or less now account for 57 percent of its sales. That’s a revealing figure, showing the market for high-end wine has shriveled over the last 2 years amid a Beijing-led crackdown on lavish government spending. That slowdown has taken the sparkle out of companies like Jiuxian, and the latest reports say the company is now eying a decidedly low-brow IPO on China’s OTC-style National Equities Exchange and Quotations system.

We’ll close with a quick look at Baidu’s share repurchase, which is really only noteworthy because of its huge size. (company announcement; Chinese article) Baidu announced the plan just days after its shares tanked nearly 20 percent at the start of this week, after it reported sharply slowing profits due to heavy spending on its online-to-offline (O2O) businesses. (previous post) The shares bounced back slightly after the buyback announcement, rising 2.6 percent on the news.

There’s not really much more to say about this buyback program, other than my previous observation that it looks like a good use of Baidu’s large cash pile. I’ve previously noted that Baidu’s recent growth strategy involves heavy spending to boost well-run companies that it has acquired in new business areas. I continue to believe such a strategy looks good for a company like Baidu, though it will need to limit the duration of its heavy spending or risk alienating investors alarmed its ballooning costs.

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