Caixin
BUSINESS & TECH

Struggling LeEco Pledges to Back Online Video Unit

By April Ma
LeEco CEO Jia Yueting has assured investors they need not worry about the financial health of the company’s flagship unit — Leshi Internet Information and Technology Corp. — despite a disappointing yearly earnings report. Above, Jia speaks at an event in San Francisco on Oct. 19. Photo: IC
LeEco CEO Jia Yueting has assured investors they need not worry about the financial health of the company’s flagship unit — Leshi Internet Information and Technology Corp. — despite a disappointing yearly earnings report. Above, Jia speaks at an event in San Francisco on Oct. 19. Photo: IC

(Beijing) — LeEco’s CEO has assured investors they need not worry about the financial health of the company’s flagship unit — Leshi Internet Information and Technology Corp. — despite a disappointing yearly earnings report.

In a letter to shareholders posted after Shenzhen-listed Leshi reported a 3% decline in year-on-year earnings for 2016 — the first slowdown ever for the 13-year-old company — Jia Yueting promised to protect Leshi from LeEco’s ongoing cash crunch.

Jia said he has shifted his focus to safeguarding the financial health of the subscription-based online video business that in 2014 spawned what’s now a conglomerate worth more than 100 billion yuan ($14.5 billion). Leshi is one of China’s most popular video websites, with about 300 million monthly unique visitors.

Leshi’s annual report, released Thursday, said earnings fell to 550 million yuan last year on revenues of 22 billion yuan, ending five years of uninterrupted double-digit growth.

The report was an especially unpleasant surprise for Leshi investors, who had been told by the company just two months earlier to expect a 33% increase in 2016 profits compared with the previous year.

Leshi, which is LeEco’s only listed unit, had posted a 57% profit increase in 2015 and 43% gain in 2014.

Jia attributed Leshi’s slowdown to costs tied to new businesses, such as a television manufacturing division that lost 600 million yuan in 2016, according to the earnings report.

In the letter, he promised that Leshi’s role in the conglomerate will hold “the utmost importance in strategic focus,” calling the unit “a solid foundation and pivotal for LeEco.”

“Cash difficulties should not affect (Leshi’s) financial health,” Jia wrote in the letter posted online with Leshi’s financial statement.

“After years of full-blown expansion, certain non-listed companies in the LeEco ecosystem are experiencing temporary financial strains,” he said. “Some of these troubles have affected Leshi, weighing down its profits.”

According to the annual report, Leshi’s debts doubled between 2015 and last year to more than 21 billion yuan, showing the company has not been exempt from cash-flow problems plaguing LeEco’s other businesses.

LeEco has been struggling in recent months to pay overdue bills from smartphone suppliers and salaries for drivers working for its ride-hailing unit. In addition, the company’s sports media arm was stripped of its broadcasting rights to the Asian Football Confederation Champions League in China.

Leshi’s poor performance is just the latest blow to LeEco, which has been struggling since Jia admitted the company’s financial troubles in November. He confessed to “speeding ahead blindly” and stretching resources thin while pursuing ambitious plans for smartphone manufacturing, sports deals and a self-driving car.

Leshi’s earnings have been blighted by its stakes in LeEco’s money-losing subsidiaries, including LeMall, the e-commerce venture that carries LeEco-brand electronic products as well as wine, which suffered a 736 million yuan loss last year; and the cloud computing unit LeCloud, which lost 17 million yuan in 2016.

Zhou Hang, founder of LeEco’s ride-hailing affiliate Yidao Yongche, recently accused the parent company of “misappropriating” 1.3 billion yuan in connection with a loan dispute. LeEco denied the allegations, saying the dispute stemmed from Zhou’s decision to backtrack on a credit agreement.

After the leveling the charge, Zhou and three other Yidao executives formally resigned. But in fact, they said, their involvement with the ride-hailing company’s operations had ended in June, eight months after LeEco acquired a 70% stake in the company.

Contact reporter April Ma (fangjingma@caixin.com)

Share this article
Open WeChat and scan the QR code
Copyright ©2017 Caixin Global Limited. All Rights Reserved.