On Sep 14, 2018, ShunWei Capital witnessed the sixth market listing of a company that it has invested in (and the second in a week): Qutoutiao (NASDAQ: QTT). The listing makes Qutoutiao the “No. 1 stock in online content aggregation”!
At the scene ofQutoutiao’s listing
L: Tan Siliang, chairman of Qutoutiao; R: Cheng Tian, partner at ShunWei Capital
ShunWei Capital participated in Qutoutiao’s Series-B funding round in March 2018. Since coming online in June 2016, Qutoutiao has gained popularity with users in third- and fourth-tier cities with its light content and innovative reading experience, and has seen its user base grow swiftly.
Congratulations to Qutoutiao on its NASDAQ listing!
Cheng Tian, partner at ShunWei Capital, has this to say:
ShunWei Capital looks very positively on the prospects of the massive “pan-entertainment” market. Qutoutiao is a new-generation lifestyle content app that is able to realize large-scale growth, high levels of efficiency and positive business system feedback with its excellent grasp of its product and high-quality content. The company is able to significantly improve the content experience of its target demographic and meet user needs. Qutoutiao has been very much able to develop the use of the mobile internet among populations outside of the first- and second-tier cities.
In addition, ShunWei Capital has always noted the tremendous potential of this market, a potential that has been borne out by the rapid growth of Qutoutiao.
Once again, I’d like to congratulate Qutoutiao on its U.S., listing. I hope that Qutoutiao will be able to ride this wave and make more advances!
Qutoutiao’s successful market listing has once again established a new record among China’s internet enterprises in terms of the time taken to IPO. The company has taken a mere two years and three months to list on NASDAQ following the launch of its app on Jun 8, 2016.
Riding the wave of growth in the Chinese market
The mobile internet market [outside of the first- and second-tier cities] is one that is growing rapidly.
Developments in the past one year show that the majority of the rising star enterprises and products have been able to capitalize in the growth of this market.
Data from Analysys indicates that in 2017, over half of all mobile internet users are located in such markets.
Currently, such markets account for a total of 1 billion persons on 500 million mobile devices, that is, an average of 0.5 devices per person.
In the first- and second-tier markets, there are around 363 million persons on 460 million mobile devices or an average of 1.3 devices per person. The growth potential of the “ex-first and second-tier cities” market should not be underestimated.
On Aug 28, China Tech Insights released its Report on Time and Money Spent Online by Internet Users in China’s Third-, Fourth-, and Fifth-Tier Cities. According to the report, the population dividend in China’s internet market has been exhausted at the top end of the market, and internet users in the third-, fourth-, and fifth-tier cities account for over half of all mobile internet users. As such, just how to swiftly identify the characteristics and needs of internet users in this demographic has become the top topic of discussion today.
The Qutoutiao app, officially launched in June 2016, had in its sights users in this specific demographic. The platform provides users in this demographic with targeted content services primarily in the areas of entertainment and lifestyle-related content by means of consolidating vast amounts of entertaining and valuable content and the use of powerful smart data analysis systems. The company has also been able to provide users in this market with sustained optimization and innovation in terms of the targeted content presented in a continued bid to meet the growing online entertainment needs of users in this “ex-first and second-tier cities” market. Qutoutiao has become a unicorn company in the area of mobile content aggregation in the short span of just over two years.
As of August 2018, the Qutoutiao app has been installed on a total of 181 million devices and has a monthly active user level of 62.2 million users. In the short span of time since its launch, Qutoutiao has become China’s no. 2 player in content aggregation, just behind Jinri Toutiao.
Rapid growth in platform businesses
It is worth noting that in addition to predicting the current market “vent” Qutoutiao has made use of a distinctive points mechanism and user social relationship chains to effectively penetrate large populations of users previously not reached by traditional internet models. Doing so has helped Qutoutiao to increase its user base as well as ensured platform activity and “stickiness” levels.
According to data from Analysys, in July 2018 the Qutoutiao app had a daily active user penetration rate (that is, Qutoutiao’s DAU rate as a proportion of the market mobile internet DAU rate) of 4.2%, placing it second in the mobile content category after Jinri Toutiao. On average, Qutoutiao users spend 55.6 minutes a day on the app, a figure that is higher than the industry average.
In addition, Qutoutiao’s unique points mechanism has also helped the app to retain users for longer periods of time. Compared to other information aggregation platforms, which have a user login rate of less than 30%, Qutoutiao has a user login rate of 95%. This has allowed Qutoutiao to better understand its users. Even when the user switches to a new mobile phone, he or she is still able to log on to his or her Qutoutiao account and access a customized content offering. This means a significantly improved user experience.
According to Qutoutiao’s IPO prospectus, in 2016, the year it was founded, the company had an operating income of CNY57.95 million. This figure rose to CNY520 million in 2017, and CNY720 million for the first half of 2018. It is worth noting that Qutoutiao has enjoyed positive cash flow since the day the app was launched. What this means is that Qutoutiao has never had to burn through its cash holdings even in its early days, when it needed to accrue users. Clearly, Qutoutiao is well-positioned for development in the long term.
Qutoutiao’s outstanding business performance has drawn the support of capital from various parties.
- According to information that is in the public domain, in H2 2017 Qutoutiao had obtained USD42 million in Series-A funding from Chengwei Capital, Redpoint Ventures, and the China Chinese Culture Group;
- In H1 2018, the company completed its Series-B funding round worth a total of USD200 million led by Tencent. Other investors in this round include financial investors like Xiaomi and ShunWei Capital, with the post-Series B valuation of the company standing at over USD1.8 billion;
- In August 2018, Qutoutiao attracted nearly USD60 million in investment from a group of strategic investors including a subsidiary fund of People.com.cn.
Continued focus on development of technologies and content ecology
Qutoutiao, a rising star on the domestic content aggregation scene, has always worked towards new breakthroughs in terms of content. A key focus following the IPO is the strengthening of its technologies and content.
Currently, Qutoutiao has established partnerships with more than 200 professional media organizations, and over 230,000 “self media” entities have also established a presence on Qutoutiao. These provide users with a vast pool of content.
At the same time, to ensure the quality of content delivered, Qutoutiao has put in place stringent content review mechanisms. Nearly 600 persons in its review team work with the aid of various algorithms to perform multiple levels of filtering on all platform content to weed out non-compliant content such as low-quality and repetitive material as the company seeks to disseminate only positive content.
We should note that Qutoutiao has obtained strategic investment funding from ThePaper.cn, a subsidiary of the Shanghai United Media Group. Both parties are set to put in place mechanisms for in-depth cooperation and to open up internal channels of communication to establish a mutually-beneficial and preferential partnership model centered on deep strategic cooperation in areas including content, branding, visitor flow, data, technologies, and internal controls.ThePaper.cn will support Qutoutiao in its efforts to establish a healthy content ecology so that the platform can grow further.
For the future, Qutoutiao will seek to accrue even more users while creating innovative products and services in even greater numbers. Apart from its current information and video offerings, Qutoutiao will branch out into “light entertainment” content such as mini games, online novels, and comics and continue to improve the existing content ecology in order to provide users with an even more varied service experience.
