Baidu Details Performance Of iQiyi Video Unit Ahead of $1.5B Nasdaq IPO

Chinese tech giant Baidu Inc. has  revealed operating details for its online-video unit  iQiyi, Inc. ahead of an upcoming US$1.5 billion initial public offering on the Nasdaq.

While the number of American Depository Shares ("ADS") to be issues and the listing price have not yet been disclosed, analyst estimates of iQiyi’s post IPO valuation range from US$8 billion and US$10 billion. NASDAQ-listed Baidu first announced the listing plans earlier this month without disclosing separate operating figures for iQiyi.

In its F-1 filing withe the U.S. Securities and Exchange Commission, the company said iQiyi’s revenues increasing by 111.3% from RMB5.3 billion 2015 to RMB11.2 billion in 2016, and further by 54.6% to RMB17.3 billion (US$2.67 billion) in 2017.

The company remains unprofitable, however, with net losses of RMB2.57 billion, RMB3.07 billion, and RMB3.73 billion (US$574.4 million) in 2015, 2016, and 2017, respectively.

According to iResearch Report, the online entertainment industry in China has grown from approximately RMB50.8 billion (US$8.1 billion) in 2012 to RMB156.9 billion (US$24.7 billion) in 2016, and is expected to reach approximately RMB688.4 billion (US$108.7 billion) in 2022. Out of total time spent by users on online entertainment in China in 2016, over 80% was spent on internet videos.

iQiyi was the largest internet video streaming service in China in terms of user time spent and average total MAUs in 2017, according to the SEC filing. For the three months ended December 31, 2017, iQiyi had approximately 421.3 million average mobile MAUs and approximately 126.0 million average mobile DAUs, while average PC MAUs and average PC DAUs reached 424.1 million and 53.7 million, respectively.

In December 2017, iQiyi users watched a total of 9.2 billion hours of videos on iQiyi’s platform, and spent an average of 1.7 hours per day per user watching video content on its mobile apps.

Content cost has historically accounted for the biggest portion of iQiyi cost of revenues, representing 69.5%, 67.1% and 72.6% of total revenues in 2015, 2016, and 2017, respectively, the company said.

Meanwhile, membership services revenue increased by 277.5% from RMB996.7 million in 2015 to RMB3.76 billion in 2016, and by a further by 73.7% to RMB6.53 billion (US$1 billion) in 2017. Membership services revenue as a percentage of total revenues increased from 18.7% in 2015 to 33.5% in 2016, and further to 37.6% in 2017, the company said.

Online advertising revenue grew by 66.2% from RMB3.39 billion in 2015 to RMB5.65 billion in 2016, and further by 44.4% to RMB8.15 billion (US$1.25 billion) in 2017.

In 2016, Baidu chief executive Robin Li proposed to acquire his company’s majority stake in iQuyi, also known as, 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.

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