News Content Aggregator Qutoutiao Files for U.S. IPO To Raise Up To $300 Million

Chinese content aggregator Qutoutiao Inc., which is backed by social media giant Tencent Holdings Ltd., filed on Friday for an initial public offering in the U.S. to raise as much as $300 million.

Qutoutiao — whose name translates to “fun headlines” — didn’t disclose other details for the offering, such as the date it will be floated or the price range, in the filing to the U.S. Securities and Exchange Commission (SEC). It said the proceeds will be used in a variety of areas, including expanding and enhancing content offerings.

Founded in June 2016, Shanghai-based Qutoutiao aggregates news and short videos from professional media and freelancers and then delivers the content — curated using artificial intelligence technology — to users. In just two years, the company has developed into China’s second-largest news platform, trailing only Beijing Bytedance’s Jinritoutiao. Qutoutiao now boasts an average of 17.1 million daily active users, who spent an average of one hour each day on its mobile app, according to consultancy Analysys.

In 2017, the company posted revenue of 517.1 million yuan ($75.20 million), nearly nine times the previous year’s 58.0 million yuan, according to the SEC filing. However, its net operating loss has grown just as rapidly, to 94.8 million yuan in 2017 from 10.9 million a year earlier.

Qutoutiao’s rapid rise has been due mainly to its strategy to concentrate on smaller cities and towns, where many people have only just been connected to the Internet and have been largely neglected or underserved by established internet-based enterprises. The mobile internet population in China is expected to grow from 970.6 million last year to 1.1 billion by 2020, with the increase taking place largely in smaller cities and rural areas, according to Analysys.

The company’s success has also been due to its popular “gamified user loyalty program,” where readers can earn points for every article they read or every new user they recruit to join the platform. The points can be redeemed for monetary rewards.

“Although loyalty points only translate into trivial monetary amounts, we believe they foster users’ loyalty and emotional connection to Qutoutiao as compared to other platforms,” the company said in its SEC filing.

Qutoutiao is one of a growing number of internet startups that have found success by targeting users in smaller Chinese cities or rural areas. E-commerce site Pinduoduo Inc., which adopted a subsidy program similar to Qutoutiao’s, floated in the U.S. last month, raising $1.63 billion in its debut on the Nasdaq stock market.

Pinduoduo uses a “group purchase” model that encourages buyers of groceries, electronic devices and other goods to invite their friends to join in a shopping spree to get discounts.

Contact reporter Mo Yelin (yelinmo@caixin.com)