Online Video Giant iQiyi Hits Up Market for Another $2 Billion

Cash-challenged online video giant iQiyi Inc. announced a plan to raise around $2 billion through the issue of notes and new shares, a month after talks to sell a controlling stake to China’s two largest internet companies reportedly collapsed due to disagreement over valuation.

The new move marks the second major capital-raising among China’s major online video companies this month, following a smaller plan to raise nearly $1 billion that rival Mango Excellent Media Co. Ltd. announced less than two weeks ago. Most or all of the online video firms are hemorrhaging money as they fight a bloody battle for a bigger share of the huge but highly competitive market.

Under its plan announced after U.S. markets closed Tuesday, iQiyi will issue up to $800 million worth of notes and up to $100 million more through an overallotment option if demand is strong. In addition, it will issue 40 million new American depositary shares (ADSs), and could sell up to 6 million more through a similar overallotment option. Based on the company’s Tuesday closing price, the share issue would raise up to just over $1 billion, bringing the total fundraising to just under $2 billion if demand is strong.

Shares of iQiyi dropped 8.2% in Tuesday after-hours trade following the announcement, indicating investor skepticism, in a sell-off that could wipe $1.3 billion off the company’s market value if the loss holds in the regular Wednesday trading session.

The company’s big losses and similar cash-bleeding at rivals like Youku Tudou Inc., backed by Alibaba Group Holding Ltd., and Tencent Video are largely the result of heavy spending on content as each races to build up video libraries needed to attract paying customers. But while the other two companies have deep-pocketed parents, iQiyi, despite being controlled by internet giant Baidu Inc., is largely financing its own way.

Since its 2018 IPO, iQiyi has been in a near nonstop fundraising frenzy. After raising $2.3 billion in its listing on the Nasdaq, it raised another $750 million through a convertible bond offering later that year. It returned to market last year by raising another $1.2 billion through another bond offer. Thus including its IPO, the latest fundraising would bring its total to more than $6 billion in three years.

The new funding comes as iQiyi continues to report quarterly losses, though the size of those is narrowing as it tries to bring costs under control. In this year’s third quarter, its loss narrowed 68% to 1.16 billion yuan ($177 million). But the cost control efforts have also affected iQiyi’s top line, with third-quarter revenue falling 2.83% to 7.2 billion yuan, marking the second quarter of decline.

As it bleeds money, iQiyi’s pile of cash and short-term investments has dwindled to 7.4 billion yuan at the end of the third quarter, down by nearly half from a year earlier.

The latest fundraising comes as Baidu was reportedly looking to sell off some or all of its stake in the company, in what could have become a major consolidation move in the sector. Baidu was reportedly in talks to sell a controlling stake to Tencent Holdings Ltd. and Alibaba — China’s top two internet companies — as recently as last month, Reuters reported, citing unnamed sources. But those talks broke down when both of the potential buyers reportedly balked at the high asking price, the report said.

It added that Baidu had been seeking to sell the stake at a price that valued iQiyi at around $20 billion — nearly 20% below iQiyi’s latest market value of $16.4 billion.

The latest funding also comes amid a similar flurry of capital raising on Wall Street by China’s equally cash-challenged field of young electric-vehicle makers. The latest of those came just last week when New York Stock Exchange-listed Xpeng announced it had raised about $2.5 billion through the sale of new ADSs.

Contact reporter Yang Ge (geyang@caixin.com)

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