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Qutoutiao Makes It Official: Seeks $300 Million IPO in New York

If successful, the Shanghai-based company, launched two years ago, could be valued as high as $3 billion.

Peter H. Frank
    Aug 17, 2018 5:47 PM  PT
Qutoutiao Makes It Official: Seeks $300 Million IPO in New York

Qutoutiao Inc., the second-largest mobile news aggregator in China, filed today for an initial public offering as it seeks to raise up to $300 million in New York.

If successful, the Shanghai-based company, launched two years ago, could be valued as high as $3 billion. According to its prospectus, the company is seeking to be listed on the Nasdaq Global Market under the ticker symbol "QTT,"  

Rumored to be under consideration for months, the regulatory filing today by the company was much anticipated. In March, Tencent Holdings Ltd. led a pre-IPO investment of more than $100 million in the startup, raising its valuation to between $1.3 billion to $1.5 billion. In addition, rumors circulated on Chinese media saying that the tech giant has also made an investment in the app last year.

The company's rival, Jinritoutiao, is considered one of the most successful unicorn companies in China with a valuation of over $20 billion based on its latest funding round. Backed by Sequoia Capital and CCB International, Jinritoutiao is also thought to be planning to raise at least $2 billion through a U.S. IPO that could come as early as this year. According the Qutoutiao filing, Jinritoutiao had a 20.3 percent share of China's daily aggregator market compared with its 4.2 percent share.

Qutoutiao, which operates as a mobile-only service, sends customized news feed to users based on their search results and selected topics of interest. The app spreads content from different online sources and media partners, including the People's Daily news agency, Beijing Times, and Hexun.com. It then repackages the articles into customized newsfeeds based on users' past reading patterns and through the use of artificial intelligence.

In particular, the company aims its content strategically to users from smaller cities and rural areas "because of the enormous opportunities in this underserved market," it said in its filing. So-called tier-3 cities and below represent a population of 1.03 billion people with each person owning an average 0.5 mobile devices, the company said. That compared with a population of 363 million people who live in larger cities, each of whom have an average 1.3 mobile devices. Given this difference, the company said, the population of smaller cities tend to prefer the "light entertainment-oriented and easily digestible content" that Qutoutiao specializes in.

Through its flagship application, Qutoutiao, which means "fun headlines" in Chinese, the company aggregates articles and short videos and presents customized feeds to users based on their profile, behavior, and social relationships. While the content varies among a large range of topics, the site focuses primarily on humor, stories, and other light-minded content. 

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The company has also credited much of its growth to its loyalty program, which allows users to earn points by referring new users to register on the site or otherwise interacting with the platform.

So far, the approach has been successful. The company currently has 48.8 million monthly average users and 17.1 million daily average users who spend 55.6 minutes per day on the site.

And while the company continues to incur losses as it looks to expand its customer base, losing $77.7 million in the first six months this year, revenue has been growing steadily. The company reported revenue of just $8.8 million in 2016, the year the company was founded, $78.1 million last year, and $108.5 million this year through June 30.

Rumored to be under consideration for months, the regulatory filing today by the company was much anticipated. In March, Tencent Holdings Ltd. led a pre-IPO investment of more than $100 million in the startup, raising its valuation to between $1.3 billion to $1.5 billion. In addition, rumors circulated on Chinese media saying that the tech giant has also made an investment in the app last year.

The company's rival, Jinritoutiao, is considered one of the most successful unicorn companies in China with a valuation of over $20 billion based on its latest funding round. Backed by Sequoia Capital and CCB International, Jinritoutiao is also thought to be planning to raise at least $2 billion through a U.S. IPO that could come as early as this year. According the Qutoutiao filing, Jinritoutiao had a 20.3 percent share of China's daily aggregator market compared with its 4.2 percent share.

Eric Siliang Tan, one of four co-founders listed in the prospectus and executive chairman of the company, currently holds a 39-percent stake in the company and is, by far, the largest shareholder.

Underwriters on the deal include Citigroup, Deutsche Bank Securities, China Merchants Securities (HK), UBS Investment Bank, and KeyBanc Capital Markets.

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