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'China’s Netflix' is really an 'online Disney': iQiyi CEO

Yahoo Finance
2019-04-17 16:21

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When Tim Yu Gong, the CEO of iQiyi, came to New York and Boston for a Non-Deal Roadshow in 2015, he found it “was very painful” to make U.S. investors understand what his company does.

Three years later, as his Chinese video-streaming company backed by search engine giant Baidu was getting ready for a Nasdaq listing, Gong found his story had become much easier to tell. Video streaming had taken off in the U.S., and Netflix had become a Wall Street darling— its share price (NFLX) at around $350, had more than quadrupled within three years.

iQiyi (IQ) was the first Chinese video streaming site to go public in the U.S. so it naturally won the title of “China’s Netflix”. Its $2.4 billion IPO in March 2018 was the fourth-largest U.S. IPO last year and the biggest among 33 Chinese companies that went public in the U.S. American investors may have never used its product, but that didn’t stop them from betting on China’s online entertainment industry.

But Gong said iQiyi is so much more than just a streaming video service.

“Our business model is quite different from Netflix, but to raise funds and make it easier for Western investors to understand, we call ourselves Netflix Plus at the time. The most accurate way to describe us would be ‘online Disney’,” Gong told Yahoo Finance in an interview. After a wild run, the stock has jumped by 54% in its first year in the public market, and grew 51% year-to-date. iQiyi shares have been holding up well among Chinese tech stocks, which have been hit by the U.S.-China trade tensions.

Gong believes the company’s “Apple Garden”-like business model differentiates itself from Netflix’s “single model” — It’s expanding vertically within the Chinese market, trying to build an ecosystem on content and IP, such as literature, comics, light novels, and gaming. Unlike Netflix, it also offers ad-supported content free to users, whom the company hopes will become paid subscribers.

Why iQiyi will remain focused on its hometown

iQiyi stock had a wild run in its first year in the public market.

While Netflix can replicate its business model and content globally, it is not that easy for a Chinese company. “There are cultural differences and language differences, so it is difficult for us to expand overseas. We are doing more in-depth development in China,” Gong said, adding that due to those hurdles iQiyi’s focus is to maintain its leading position in the domestic market and try to grow deeper.

Most Chinese tech giants are like iQiyi because it’s difficult for them to follow the same path as a typical U.S. tech giant like Netflix, according to Gong. Alibaba (BABA) and Tencent, for example, have built empires from e-commerce, social media and games that dominate every aspect of Chinese people’s daily life.

“The biggest difference is, American companies are more focused, and Chinese companies are more diversified,” he said. “In China, the development speed is too fast, and the capital investment is relatively large in terms of the scale of the industry, so in order to expand the territory, you usually have to be diverse and the single mode is difficult to survive.”

Source : Yahoo Finance 
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