Sep 15, 2018
A Chinese company is set to launch its IPO, and it is hoping for better results than NIO and YI. That company is Qutoutiao (QTT), China's second largest mobile content aggregator. As discussed below, its revenue growth has been spectacular, which may help lure in growth-oriented investors. However, its fundamentals are less than pristine as the company is not yet profitable.
As for its IPO, QTT is offering 16.0 mln ADS, which are expected to price within a range of $7-$9 for total gross proceeds of $128 mln. The lead underwriters on the deal are Citigroup and Deutsche Bank, and shares are slated to open for trading on the Nasdaq.
Overview
QTT is the No. 2 mobile content aggregator in China. Its flagship mobile app, Qutoutiao, means "fun headlines" in Chinese. The app aggregates articles and short videos from professional media and freelancers and presents customized feeds to users. These feeds are optimized in real time based on each user's profile, behavior, and social relationships through a proprietary AI-powered content recommendation engine.
Covering a broad range of topics, Qutoutiao is focused on humor, stories, and other light entertainment content that platform users find delightful and inspiring. Its content is generally sourced from professional media under a licensing arrangement or uploaded by the more than 230,000 freelancers registered on the QTT platform. In addition to articles and short videos, QTT plans to diversify into providing works from other media genres including literature, casual games, live streaming, animations, and comics.
QTT generates the vast majority of its revenue from advertising. QTT primarily charges on a cost-per-click, or CPC, basis. QTT places ads on the main pages and topic pages as well as on the content pages of its mobile apps. Baidu (BIDU) is QTT's largest customer. However, QTT acquired an advertising agent in February 2018 that operates a programmatic advertising system. This allows QTT to reduce its reliance on third-party ad platforms such as Baidu. It's already having an impact. BIDU has fallen from accounting for 43.7% of QTT revenue in 2017 to just 12.1% in 1H18.
Since its launch in June 2016, QTT has rapidly gained popularity, reaching MAUs of approximately 62 mln, average DAUs of approximately 21.1 mln, and average daily time spent per DAU of 55.4 minutes in August 2018. The company believes it represents a new generation of technology-driven content platforms. Historically, users are accustomed to consume content passively as media dictate content curation with little or no personalization. However, as the volume and diversity of content available on the Internet grows exponentially, users demand content personalization, and this is only readily achievable through technology.
Financials
QTT is not yet profitable, but the company is growing revenue quickly. Revenue in 2016 was US$8.8 mln, which then jumped nearly 800% to US$78.1 mln in 2017. In 1H18, revenue jumped 569% year/year to US$108.5 mln. You can see that QTT posted more revenue in 1H18 than it did in all of 2017, indicating that it's growing very quickly. For the month of July 2018, revenue is expected to be US$39.3-40.8 mln. QTT has seen rapid growth since the launch of QTT in terms of installed users, MAUs, DAUs, and revenue.
About Oceanpine Capital
Oceanpine Capital is a professional investment management firm dedicated to long-term investment with a focus on value creation. We provide long-term capital and professional value-added services to high-growth enterprises and start-up companies. We focus on investment opportunities in the TMT, consumption upgrade, advanced manufacturing, and healthcare sectors. We mainly invest in private companies with rapid growth, but also look at some opportunities in public companies.For more information, please visit http://oceanpine.net.