Chinese tech giant Baidu Inc. has formally proposed listing its online-video unit iQiyi in the U.S. in an initial public offering likely to value the company at up to US$10 billion.
In its annual earnings report issued today, NASDAQ-listed Baidu said it had submitted a draft registration statement on Form F-1 to the U.S. Securities and Exchange Commission for a proposed IPO of iQiyi.
Sometimes referred to as the Netfix of China, iQiyi competes with Alibaba Group Holding Ltd.’s Youku Tudou and Tencent Holdings Ltd.’s Tencent Video. In 2016, IQiyi exceeded US$1 billion in revenue.
The number of American depositary shares to be offered in the proposed IPO has not yet been determined. Baidu said it expects to remain iQiyi’s controlling shareholder after the completion of the IPO. Analysts have reportedly valued the company at between US$8 billion and US$10 billion.
In 2016, Baidu chief executive Robin Li proposed to acquire his company’s majority stake in iQuyi, also known as Qiyi.com, in a deal giving the unit an enterprise value of around US$2.8 billion. The deal was scrapped, however, after investors including New York-based hedge fund Acacia Partners LP, protested that that deal greatly undervalued the video unit.
One motivation for the spin off may be to separate iQiyi’s operations from Baidu’s reported earning. With the Internet search giant pushing hard into artificial intelligence and self driving vehicles, online video and video streaming is no longer a core business for Baidu.
It’s also expensive. According to the earning release, Baidu’s content costs as a component of cost of revenues were RMB13.4 billion (US$2.06 billion), representing 15.8% of total revenues, compared to 11.1% in 2016.
The year-over-year increase was mainly due to iQiyi’s increased content costs, the company said. iQiyi reduced Baidu’s non-GAAP operating margins by 11 percentage points in 2017.
"Entering 2018, we plan to continue our strategy to exit non-core businesses and increase investments in Baidu’s mobile and new AI businesses, which we believe play to Baidu’s strengths as a technology leader and will sow the seed for Baidu’s future growth in autonomous driving and conversational AI, particularly in the home environment," said Herman Yu, CFO of Baidu, in a statement.
Baidu’s fourth-quarter revenues rose 29% year over year to RMB23.6 billion (US$3.62 billion), exceeding the company’s internal guidance. The company’s NASDAQ-traded ADR’s were up more than 5% to US$225.60 in after-hours trading Tuesday in the U.S.