Bottom line: Qutoutiao’s recent flurry of fund-raising, including a major loan from Alibaba, underscores rising confidence in the news aggregator after its lackluster IPO last year.
News aggregator Qutoutiao (Nasdaq: QTT) is making up for lost time following its lackluster IPO last fall that raised far less than its original target. The company has just announced a new share sale that will generate about $30 million in cash, just days after raising another $171 million from e-commerce giant Alibaba (NYSE: BABA).
Investors didn’t seem too impressed with the latest cash-raising exercises, with Qutoutiao’s shares shedding some 8 percent in the last trading session. That drop appears related to announcement of the pricing of this latest share sale, since the company first announced the move a few days ago. Regardless of that, this does provide a good opening for us to take a closer look at this company.
Qutoutiao is in a hot area for China right now that is led by industry behemoth Bytedance — the world’s biggest high-tech unicorn with a market value of some $75 billion. Qutoutiao is No. 3 in the space, quite a ways behind Bytedance, with a far more modest market value of about $2.5 billion. But people do seem to see quite a bit of potential from this group, which get users addicted to their content by using algorithms that figure out what people like and then recommend more of the same.
All that said, let’s recap the latest developments for this company, including its stock history, to try and figure out where Qutoutiao is going. The company made a relatively low-key IPO last September that ended up raising a relatively paltry $84 million — less than a third of the $300 million it had originally targeted. (previous post)
It’s been relatively quiet since then in terms of fund raising, but splashed back onto the headlines last week when it announced it would borrow $171 million from Alibaba. (English article) That particular deal was noteworthy not only for the size of the loan, but also the fact that Alibaba got the option to convert the amount into Qutoutiao shares, which would give it around 4 percent of the company if it exercised that option.
If it did, Alibaba would join internet rival Tencent (HKEx: 700) in backing Qutoutiao, since Tencent already owns 7.7 percent of the company. Having China’s two largest Internet companies as your backers is certainly a major vote of confidence. It also reflects the fact that the much larger Bytedance doesn’t seem interested in taking on either Alibaba or Tencent as major backers yet — a rarity in China’s Internet realm these days.
That brings us up to the latest development, which saw Qutoutiao announce the pricing for about 3.3 million of its American Depositary Shares (ADSs) it will sell into the market. (company announcement) The actual pricing was $10 per ADS, which also just happens to be Qutoutiao’s latest closing price after the 8 percent Wednesday selloff. In addition to the roughly $33 million Qutoutiao will raise, some of its other shareholders will sell additional ADSs that will bring the total to about $100 million worth of new ADSs entering the market.
A little math will show that Qutoutiao has now raised about $300 million between its IPO, the Alibaba loan and this latest ADS sale, which was its original lofty aim when it originally decided to float shares. The stock originally popped right after the IPO, which could have easily been manipulated, since those gains didn’t last long and the stock quickly fell below the IPO price. It’s been above the IPO price since the start of this year, amid a broader rally for Chinese stocks, and is now more than 40 percent ahead.
From a broader perspective, Qutoutiao’s latest earnings report does show a company in a stage of mega-growth, led by a five-fold revenue increase in last year’s fourth quarter. (company announcement) Its quarterly net loss also jumped by about sixfold, though the figure still looks manageable at around $58 million.
At the end of the day, the company does appear to be growing quite quickly, and its discovery by the likes of Alibaba is also certainly a positive sign. Its current growth looks a bit like Tencent’s wildly popular WeChat and Alibaba’s equally popular Taobao in their early days, which could be encouraging if the company can steer clear of China’s fickle censors.