Iqiyi became the industry leader at the end of its seventh year of establishment, only one IPO away from coming of age

After a series of capital surges in 2016, iQiyi completed a US$1.53 billion convertible bond subscription, and its market ranking has withstood the test of the entire year, and continues to rank first in core dimensions such as user activity.

Original title: How long can iQiyi maintain its status in the industry? The IPO of the Hong Kong Stock Exchange may become

the next step. iQiyi ushered in its most complacent moment in its seven years since its establishment. After a series of capital surges in 2016, iQiyi completed a US$1.53 billion convertible bond subscription, and its market ranking has withstood the test of the entire year, and continues to rank first in core dimensions such as user activity.

From the company to the industry, from internal support to the external environment, iQiyi is only one IPO away from coming of age. In terms of the right time, location and people, this is also the best time for iQiyi to land on the open market.

Previously, the Wall Street Journal reported that iQiyi plans to go public in 2017 with a valuation of US$5 billion and is expected to raise about US$1 billion.

Now, there has been new progress in this news, which was "not commented" by iQiyi officials. A source told reporters that iQiyi is seriously considering the possibility of listing in Hong Kong. However, the other party said that it could not disclose the specific progress at present, but emphasized that the strategy of landing on the Hong Kong Stock Exchange had already been launched when the decision to withdraw the MBO was made.

Industry status is hard-won.

For iQiyi, the current status and opportunities are unprecedented.

At the iQiyi World Conference in May 2016, CEO Gong Yu once lamented that after six years of hard work, he finally reached the top in core indicators such as user number, viewing duration and market coverage. By the end of the year, according to data released by several third-party institutions such as iResearch, TalkingData, APPAnnie and Trustdata, iQiyi had maintained its market leading edge.

According to the 2016 global application revenue ranking released by App Annie, only iQiyi has been listed in the top ten apps in China

. If it is listed at this time, iQiyi will be the number one online video company in the China market. Moreover, for the content cost that requires continuous investment, the open market can provide much more "blood" than currently.

But if you refuse to strike while the iron is hot, the opportunity will most likely be fleeting. After all, the summit in 2016 was not only due to internal cultivation, but also due to a lot of luck, especially the Black Swan incident when Youku Tudou integrated into Alibaba Entertainment.

In the online video market in 2016, on the one hand, the former industry leader Youku Tudou was wholly acquired and entered the Alibaba system, and the integration state under the large entertainment structure was opened. He had no time to take into account the industry's hard work, which objectively reduced the pressure on iQiyi; On the other hand, Tencent Video and Sohu Video chose conservative and stable ideas and invested less than iQiyi. Especially in grasping the top content of users, iQiyi is still more willing to spend money than their peers; In addition, the once-aggressive LeTV is mired in the overall crisis of funds and holding companies. It has even recently lost sports copyrights such as the Super League and has not yet emerged from the quagmire.

The status of competitors objectively gives iQiyi an opportunity to stand out, but it is not difficult to find that iQiyi is currently completely in a state of "supporting war through war". Once investment is reduced or stopped, its market position may also follow. Changes have taken place, and its position as the first in the industry is not solid.

Fighting to support the

endless war Even if a new US$1.53 billion in convertible bonds was recorded, this is not a huge sum for iQiyi. According to Baidu's 2016 full-year financial report, among Baidu's content cost expenditures, mainly iQiyi content costs, were RMB 7.864 billion (approximately US$1.133 billion) in 2016, accounting for 11.1% of Baidu's total annual revenue.

Moreover, investment in content costs has almost doubled year after year. When Baidu disclosed the cost of iQi-based content in 2012, it increased from 215.1 million yuan (approximately US$34.5 million), 830.4 million yuan (approximately US$173.2 million), 1.872 million yuan (approximately US$301.7 million), and 3.745 billion yuan (approximately US$578.1 million), all the way to the recent 7.864 billion yuan (approximately US$1.133 billion).

Iqiyi's annual content cost expenditure (according to Baidu's financial report)

can be said to have spent money all the way to support Iqiyi's current market position. However, it is worth noting that not only is iQiyi's break-even point illusory, but Baidu, the biological father, is also experiencing difficult times. Judging from the financial report, Baidu's revenue growth is experiencing a turning point-especially the "Interim Measures for Internet Advertising Management" Since the implementation of the Measures, the foundation of Baidu's revenue growth has been shaken, but the new growth business has not yet reached the stage.

Although Baidu CEO Robin Li and CFO Li Xinzhe said on the earnings conference call that they will continue to support iQiyi's investment in content and believe that iQiyi is an integral and important component of Baidu's content ecosystem, judging from the reaction of the capital market, iQiyi has obviously always been a burden in Baidu's financial report.

It can be exemplified by that after the news that "Li Yanhong and Gong Yu will take the lead in MBO for iQiyi" was announced in February last year, Baidu was well received in both public opinion and the capital market. It was considered to be a move after Qunar. The stock price also rose accordingly. After withdrawing the MBO decision, iQiyi's content costs and future investment have always been the most concerned issues for analysts at Baidu's earnings conference.

However, Baidu's management clearly knows that since the "war to support war" model has begun, iQiyi's future development will always rely on investment in high-quality content. This state cannot be interrupted until profit models such as advertising and user payment, and the development of China's content ecosystem market can fully support iQiyi's independent blood. But for this day, whether it is Baidu or iQiyi, the answer is vague-because it is difficult to give a specific timetable.

In fact, listing is also a choice that iQiyi has to make now. On the one hand, listing can give the parent company Baidu, which focuses entirely on AI transformation, a chance to breathe and adjust; on the other hand, only by listing as a leader will it have the opportunity to further stabilize its first position.

Unlike other industries, the factor that affects online video user loyalty cannot be more obvious: high-quality content. Iqiyi's coming from behind in the past two years is closely related to the copyright of a large number of high-quality content. From "You from the Stars" to "Descendants of the Sun", from "Hua Qian Gu" to "Lao Jiu Men", from "Xiao Song Qi Tan" to "Qi Shuo", etc., iQiyi has achieved user growth and member payment ratio The factors that increase are all these high-quality content.

However, high-quality content is also very expensive and scarce. Not only is it increasingly contested by all parties, but it may no longer be something that can be obtained simply through money. For example, Ma Dong, former CCO of iQiyi, was the core of iQiyi's creation of "Qi Qi Shuo". Although "Qi Qi Shuo" remained in iQiyi after Ma Dong left and went alone,"Qi Qi Shuo" remained in iQiyi,"Bye Bye for Meat" and "The Temptation of Dinner" chose Youku and Tencent Video respectively.

An employee of Miwei Media told reporters that as a content producer, no platform should be left behind."Although it is now a seller's market, if you have a good relationship with the platform, you can get more recommendation resources from the platform. More importantly, judging from the development trend of these platforms, they lack differentiation and it is difficult to predict who will be the final winner."

Another example is "Xiao Song Qi Tan". Since Ma Dong invited Gao Xiaosong from Youku Tudou to iQiyi,"Xiaosong Qi Tan" has become a very important IP of iQiyi. However, Gao Xiaosong, the core soul of this IP, has long since become chairman of the board and music director of Evergrande Music at that time. Chairman of the Strategy Committee of Ali Entertainment. Although the main reason for the temporary closure of "Xiao Song Qi Tan" is Gao Xiaosong himself, it is not difficult to predict that if the chairman of the Ali Entertainment Strategy Committee "speaks" again, the platform will most likely be Youku Tudou, and those who come because of Gao Xiaosong will leave iQiyi again just like they left Youku back then, and the story of "Xiao Song Qi Tan" will be staged again.

Therefore, for iQiyi, the only way to maintain user loyalty is more and richer high-quality content. Only in this way can we further increase the number of users based on the current base, and it is also possible to further increase the user payment ratio.

To put it bluntly, the video industry is more direct and naked than any industry-only investment can produce output, and the first priority of investment is real money.

Why the Hong Kong Stock Exchange?

At present, the support provided by controlling shareholder Baidu and the new round of external financing are becoming more difficult as the amount increases. For iQiyi, it's time to launch itself into the public market.

It is not that iQiyi has never tried it, at least twice explicitly: once in 2014, when it was rumored that it would go to the U.S. market, but there was no follow-up later. The other was the "MBO" incident in February 2016. At that time, the clearest intention was to return to China first and then land on the strategic emerging board in due course. However, due to the unpredictable policies, iQiyi's wish was once again dashed.

In fact, the reason why iQiyi has an MBO and returns to China for listing is also related to the "gloom" of the capital market.

On the one hand, the enthusiasm shown by the domestic capital market for technology stocks is making many listed and unlisted technology companies covet it. Everyone wants to become the next "Storm" or the next "LeTV", and the Strategic Emerging Board has Nasdaq's "ability to go public even if it loses money", which gives iQiyi and other companies that have no balance but continue to replenish their blood see hope.

On the other hand, China Stock Exchange has been left out as never before in the U.S. capital market. Although it is related to the privatization of China Stock Exchange to a certain extent, there is still a big background that video websites are not optimistic about this small background. From Kuliu to Youku Tudou, Wall Street has not shown optimism about the prospects of video websites. Kuliu even faced a delisting crisis for a time.

How can we not only combine the user market and the capital market, but also use the capital market to leverage greater financial support? This is the reason why iQiyi and the Hong Kong Stock Exchange were linked.

The reason why the Hong Kong trading market, which allows losses, has not been the main listing position for China Internet companies is because the Hong Kong capital market does not have the AB share system of the US market. Those founding teams whose equity is constantly diluted due to multiple rounds of financing do not want to lose control of the company in a "same share, same rights" market.

However,"same shares, same rights" is not a problem for iQiyi, because whether it is equity or voting rights, Baidu holds an absolute position on the board of directors of iQiyi, and the control of iQiyi is firmly grasped in the hands of Chairman Li Yanhong.

After the decision to cancel the MBO was announced last year, a Baidu insider told reporters that the cancellation of the MBO was entirely out of consideration for the future, and had nothing to do with the outside world talking about "small and medium shareholders" joining forces to oppose it."Why would a shareholder who has control over both equity and voting rights compromise because of minority shareholders? Obviously unreasonable."

Fortunately, Hong Kong's trading environment and circulation speed are also accelerating. Especially with the official opening of policy channels such as Shenzhen-Hong Kong Stock Connect and Shanghai-Hong Kong Stock Connect, mainland users will more conveniently participate in transactions in Hong Kong's capital market.

The advantage of unifying user markets and capital markets is that you don't need to tell stories by analogy, they can assess your future through your services and products-which is obviously much easier than pleasing Wall Street investors.

However, even if you make up your mind to land on the Hong Kong Stock Exchange, the window period left for iQiyi is not long. At present, iQiyi's first throne is not stable, but competitors are rushing in: after the integration of Alibaba Entertainment, Youku Tudou will regain the market with greater power. Tencent Video's ambition will follow Tencent's efforts in the content ecosystem. Investment in terms of investment is gradually becoming clear, and Sohu Video will become Sohu's lifeline after Sogou's independent listing. It can be seen from Zhang Chaoyang's repeated statements that competition in the video industry will only become more intense.

Editor: Nancy