CSO INTERVIEW: Qutoutiao's IPO Was About "Credibility"

CSO Oliver Chen said the IPO was a "happy ending" to an eight-month process and would give the company credibility as it pushes for a bigger market share.

Anna Vodopyanova
    Sep 14, 2018 5:13 PM  PT
CSO INTERVIEW: Qutoutiao's IPO Was About "Credibility"
author: Anna Vodopyanova   

The stock of Qutoutiao Inc. (Nasdaq: QTT), China's No. 2 news app, rocked Wall Street in its debut Friday, ending at $15.97 per American depositary share, more than twice its offering price.

The Shanghai-based company set off at $7 per share and within hours skyrocketed to $17, interrupted repeatedly by volatility trading halts on Nasdaq. On the day, Qutoutiao ended with a valuation of approximately $4.6 billion and an additional $84 million in funds from the IPO.

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Shares in Qutoutiao closed at $15.97 per share on its debut day, up nearly 130 percent.

(Source: Thomson Reuters Eikon)

Raising money was not a priority for the company, however, according to the chief strategy officer of the company, Oliver Yucheng Chen.

Completing an IPO in New York would bring brand awareness to Qutoutiao that would take the company to its long-term expansion goals, Chen said in an interview with CapitalWatch Friday after the public offering.

Through its flagship mobile 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.

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.

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. Most of those users, about 80 percent, are in China's tier-3-and-below cities. In addition to further exploring the potential in that sector, which has a population of 1.03 billion people, the company seeks to increase its market share in upper-tier cities.

Founded just two years ago, Qutoutiao beat its rival, China's largest news app, Jinritoutiao, to Wall Street. 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 to the Qutoutiao filing, Jinritoutiao had a 20.3 percent share of China's daily aggregator market compared with its 4.2 percent share.

Among Qutoutiao's biggest investors is Tencent Holdings Ltd. (HKEX: 0700). In March, Tencent led a pre-IPO investment of more than $100 million in the startup. In addition, rumors circulated on Chinese media saying that the tech giant has also made an investment in the app last year.

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Qutoutiao team Friday at the closing bell ceremony on the Nasdaq.

(Source: Nasdaq Twitter)

Rumored to be under consideration for months, Qutoutiao's IPO was much anticipated. Today, Chen told CapitalWatch about the startup's IPO process, its growth, and its future plans.

CapitalWatch: Now that Qutoutiao is a public company, how do you feel?
Oliver Chen:
It was a very long process, and all of us are happy with this happy ending.

It is great that the stock went up quite a bit today, but we are focused more on the business and bringing the value to the investors and shareholders in the long-term, and at least, try to ignore the short-term ups and downs.

CW: What was the biggest challenge that Qutoutiao had to overcome to get to where it is today?

OC: You know, a lot of the Chinese companies, when they come to the U.S., they say they are the "Google of China," or the "Netflix of China," but for us, there are no comparables. So, it took us some time to educate the market and the investors about who we are, what we do, and how our model is superior to traditional media models because we are more of a technology play.

Ultimately, people understood the value of our company and were very impressed with our growth, but it took us some time to get there.

CW: Rumors circulated in the media for quite some time that the company was considering going public. When did Qutoutiao begin its IPO countdown?
OC:
We officially kicked off around January, so it took us about eight months to get to where we are.

Right now, our focus is on growing our business in a very specific sector – in tier-3-and-below cities in China. But we know that, as we need to grow, we need to be more inclusive in terms of acquiring users outside of our current audience.

Being a public company will really bring out our capability [and bring exposure to] who we are and what we do. That's why I believe that it's more important to bring that to our users while we are growing.

CW: Why did the company turn to New York, as opposed to Hong Kong, for example, where your investor, Tencent, trades it shares?

OC: Nasdaq is the place, the dream exchange, for all the technology or internet companies out there.

If you look at the Hong Kong market, there aren't that many pure technology companies. When you combine internet and technology, we believe that investors in the U.S. are going to understand our story better.

CW: Tell us a bit about the company's history. In just two years, the startup has grown quite a lot.

OC: The core management team of Qutoutiao, including myself, all worked together in another large internet company in China called Shanda [SNDA Interactive Entertainment Ltd.] back in 2010 to 2011.

When Eric [Siliang Tan], the chairman and founder of Qutoutiao, came out to do his first startup in 2013, which was called AdIn Media [AdIn Media (Shanghai) Co., Ltd.], a bunch of us joined him. The startup helped publishers in media to monetize their inventory. We soon realized the ceiling of that business model, and we sold that company in 2015.

We then started working on something else based on our knowledge in ads and technology, publishing, and media. So, we launched Qutoutiao in June 2016, and we've been growing since.

CW: What were some factors that helped Qutoutiao grow so fast?

OC: It's a couple of things.

Number one, a lot of the content aggregators out there, or even just internet offerings, are very geared towards tier-1 and tier-2-city users. There isn't something that's tailored for tier-3 and below in China, so we believe that we picked this penetration point that is critical for initial growth and expansion.

We took something to this group of people that nobody cared about: the light entertainment, the fun content, the topics that would resonate with them a lot more.

The example that I always give is the U.S.-China trade war. The topic that would attract tier-1 and tier-2, more elite, internet users, would be what's happening to the RMB devaluation. For tier-3 and tier-4, something that would be more interesting is – the trade war is coming, here are the five things you need to buy before they get more expensive. You see, it's the same topic with a different twist to it, and the latter content attracts way more users than the RMB devaluation.

CW: In your prospectus, the company calls itself "second-largest" in China. Does Jinritoutiao, the No. 1 news app, target a different audience?

OC: When we promote our application, we don't necessarily promote to a specific sector, but the end result of our user mix is about 80 percent in tier-3-and-below cities, and 20 percent in tier-1 and tier-2-cities. For our competitors, their mix could be 50 percent tier-1 and tier-2 and 50 percent tier-3-and-below.

CW: Share with us some of your future plans for the long term and for the short term.

OC: Our long-term mission is to build this entertainment, fun-content ecosystem.

Right now, we're offering articles and short videos on our platform. If I could use the example of an amusement park like Disney, it's almost like an amusement park offering roller coasters and merry-go-rounds. In the future, we're going to be offering more content variety. In fact, we have literature, as well as casual games, in testing right now. Later on, we might be going into livestreaming, music, comics, etcetera, and really add on to the offerings. So, our amusement park would not only have two rides, but would also have bumper cars, a haunted house, and everything will be entertainment, fun-related.

Ultimately, the goal is to have users come and stay with us and not just offer two types of content, but many varieties.

Short-term wise, we are still doing really well in tier-3-and-below cities, and there is still quite a bit of potential, and we are going to continue to do that in the short term.

CW: How is Qutoutiao planning to use the proceeds of the IPO?

OC: First, content offering; and second, acquiring talent and growing the company in general.

Our company isn't exactly cash-starving. In fact, we have raised between $200 to $400 million in the past few years and we haven't used much of it, if you look at our financial statement. Everybody asked us why we were going public right now. But for us, it's about building the credibility of the company.

As we start to expand into upper-tier cities, what is going to be important is having the brand image that's going to be sinking in with the users, whether they are in tier-3-and-below or tier-1 and tier-2.

CW: By acquiring talent, do you mean looking for engineers in tech development?

OC: That is exactly correct. As a technology company, we are continuing to build our content recommendations, algorithms, and engine, as well as optimize our monetization engine. That's all engineering talent in big data that we are seeking.

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