A Chinese news app is delivering an entertaining feed to investors. Tencent-backed Qutoutiao, which translates to "fun headlines", filed to go public in New York within a day of raising money privately. It's far from the only howler.
Two-year-old Qutoutiao says some 17 million users tune in daily for nearly an hour on average. They can customise, curate and share third-party articles and videos about celebrities and mostly other light fare. Competition is fierce, but the fast-growing Shanghai-based startup stands out with the unusual approach of doling out cash rewards.
Qutoutiao users, for example, can earn "loyalty points" worth about 50 cents to $1 for every referral to their friends. Readers also can receive credits for viewing, sharing and commenting on content, too. The points can be converted into cash, which can be withdrawn once a balance reaches a certain level, based on a daily exchange rate set by the company.
The numbers aren't adding up yet, though. Advertising revenue is soaring as registered accounts, mostly from referrals, grew from to 133 million in the six months to June from 73 million a year earlier. Loyalty-point costs quintupled to 707 million yuan ($103 million) over the same span, however, or roughly equivalent to total sales. That led to a net loss of 514 million yuan.
It is probably one reason Qutoutiao closed the tightest pre-IPO fundraising round in history. It disclosed a $77 million infusion on the same day as its documents to go public. One backer is People's Daily, Beijing's state-run newspaper, which could be explained by Qutoutiao's lack of important approvals. Chinese regulations require all online news providers to have a state-owned investor to apply for a license. The timing suggests a rush job.
What's more, the company has not paid certain taxes, which could come back to bite it. Chinese regulators are cracking down on internet content more broadly. And Qutoutiao has yet to even secure the rights to its own name after a competitor objected. Jinri Toutiao, which is on the verge of securing a private $75 billion valuation according to the Wall Street Journal, could be the agitator. Much of the news coming out of Qutoutiao itself is really no laughing matter.