Chinese technological company Baidu confirmed its plans to list its video streaming unit on the US exchange, slowly moving away from its core search engine business and heading toward emerging technologies like artificial intelligence and autonomous driving.
The company, listed on Nasdaq, said that it filed documents with the US Securities and Exchange Commission for an initial public offering (IPO) of iQiyi, its video streaming unit. However, the proposed number of US depository shares in the IPO has not yet been determined. In a statement, the company said that it expected to maintain itself as iQiyi’s controlling shareholder after any listing of the business.
Jefferies analysts recently valued the business at $15 billion in a note.
If the listing materializes, it will give iQiyi more firepower to set Baidu toe-to-toe against Tencent Holding Ltd and Alibaba Group Holding Ltd in an expensive video streaming market. Subscription fees from the video streaming unit have been Baidu’s key driver behind its revenue growth last year, which has been a turnaround from a weak performance the year before.
Content costs climbed 82 percent to $2.06 billion last year. Chief Financial Officer Herman Yu said that it would likely soar at the same speed this year, indicating an almost $4-billion jump. Even though it is expensive, video streaming is crucial in retaining users and generating ad sales.
“The iQiyi IPO confirmation is positive and we think that video will be a top story in 2018,” said Kirk Boodry, analyst at New Street Research. “If Baidu gets 15 percent of the valuation as proceeds of the listing then you’re talking about $1.5 billion to $2 billion and their content costs are probably in that range now, so it gives them a couple of years of funding.”
Strategies and Figures
Baidu was founded in 2000 and was primarily dependent on online advertising. However, its initial business model didn’t make the cut to keep Baidu on par with rivals Alibaba and Tencent.
To compete more effectively with its rivals, Baidu has spent over $2 billion to acquire content, representing an increase to 15.8 percent last year from 11.1 percent of total cost in 2016. To further boost its foreign language hits, the business signed a licensing deal with Netflix in 2017.
According to one Hong Kong based banker, iQiyi “looks good on the outside but it burns a lot of cash. Netflix is the same.”
Robin Li, Baidu’s chief executive, attempted to buy a majority stake in iQiyi in 2016 at a $2.8-billion valuation. However, shareholders rebuffed his offer, saying that they felt it undervalued the streaming service.
“It’s not profitable yet but we lost a lot less than the competition,” said Li on an earnings call.
Baidu has placed enormous bets on artificial intelligence. Additionally, the business also aimed to diversify its revenue streams by spending $1.99 billion on research and development, building new products, which include its Apollo autonomous driving system, an open-source platform, and AI powered home devices.
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