MEDIA: LeTV Follows Xiaomi Road With Yidao Car Investment

Bottom line: LeTV’s latest hired car services investment and high-profile poaching of top talent from a rival look similar to the recent rapid rise and sputtering of Xiaomi, and the company could follow a similar trajectory by this time next year.

LeTV steals top talent from Youku Tudou

After watching the meteoric rise of online video sensation LeTV (Shenzhen: 300104) over the past year, I’m quickly tiring of this company and its hyperactive diversification strategy. The latest move in that drive is taking LeTV onto the road, with word the company is investing a hefty $700 million for a controlling stake of struggling private car services firm Yidao Yongche.

At the same time, other media are reporting that LeTV has just stolen a top executive from chief rival Youku Tudou (NYSE: YOKU), which announced last week it has received a buyout offer from e-commerce giant Alibaba (NYSE: BABA). Anyone feeling a sense of deja vu from these latest 2 LeTV headlines, and from LeTV’s meteoric rise in general, would be correct.

That’s because in many ways LeTV’s sudden rise looks a lot like that for fast-fading former smartphone sensation Xiaomi. But I’ll return to that part of the story shortly, and also to my own prediction on whether LeTV is destined to follow the same rapid rise followed by an equally rapid fall now being experienced by Xiaomi.

First let’s zoom in on the latest headlines that have LeTV reportedly buying the controlling stake in Yidao Yongche, a distant fourth in the Chinese hired car services market behind leaders Didi Kuaidi, Uber and a service operated by car rental specialist Car Inc (HKEx: 699). The same Yidao Yongche has been in the headlines several times already this year, once when it was rumored to be in merger talks with Uber China (previous post), and again when it protested the merger that formed Didi Kuaidi at the start of 2015. (previous post)

The bigger story is that Yidao Yongche is quickly getting marginalized by its bigger rivals, which is probably why Uber ultimately decided to scrap any merger plans, if such talks ever really occurred. Now it appears that LeTV is stepping in as Yidao Yongche’s new savoir, by confirming its investment plan without commenting on specifics. (Chinese article)

According to the reports, LeTV will be the lead investor in a new funding round for Yidao Yongche, becoming a strategic partner for the company. Others in the round will include leading online travel agent Ctrip (Nasdaq: CTRP). Once the investment is complete, Yidao Yongche will undergo a restructuring that will presumably include some integration with LeTV’s and Ctrip’s popular online video and travel services products, respectively.

Attracting Top Talent

At the same time, another report is saying that LeTV has just poached Youku Tudou vice president Li Li to become its own senior vice president and chief content editor. (Chinese article) There’s no other major detail in the report, and instead the most significant thing is the fact that LeTV even decided to make this kind of high-profile announcement about stealing a top executive from a rival.

Industry watchers will note this kind of high-profile personnel-stealing announcement was standard fare for Xiaomi for much of the last 2 years, as it hired top talent from such big names as Google (Nasdaq: GOOG) and Sina (Nasdaq: SINA). Attracting such big-name talent testifies to a company’s attractiveness, but making such high-profile announcements also reflects a certain level of hubris.

Xiaomi certainly had plenty of hubris during its rise that saw its valuation soar as its core smartphone business briefly become the world’s third largest brand in a very short time. But the company failed to find similar success in a number of other products, and has begun to struggle as growth for its smartphones also slows sharply this year.

LeTV has many of these same qualities, which are reflected by these latest moves into the unrelated car services business and big announcements of talent poaching from rivals. It’s still far from clear if LeTV is set to experience a similar plateauing or even decline like Xiaomi is now doing. But I would put the chances at greater than 50-50 that LeTV is likely to become yesterday’s news by this time next year.

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