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MarketScreener Homepage  >  Equities  >  Hong Kong Stock Exchange  >  Tencent Holdings Limited    700   KYG875721634

TENCENT HOLDINGS LIMITED

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Exclusive-Alibaba, Tencent put talks to buy iQIYI stake on hold due to price, regulatory concerns -sources

11/29/2020 | 08:23pm EST
FILE PHOTO: iQiyi Inc., logo is displayed on screen during company's IPO at Nasdaq Market Site in New York

HONG KONG/BEIJING (Reuters) - Alibaba Group Holding Ltd and Tencent Holdings Ltd have each held separate talks with Baidu Inc to acquire a controlling stake in video streaming service iQIYI Inc, people with knowledge of the matter told Reuters.

But the discussions have stalled with little hope of recommencing soon as they balk at a valuation of around $20 billion demanded by Baidu and as both companies, which have their own video streaming services, face heightened scrutiny by China's antitrust regulators, two people said.

Another Chinese tech giant, TikTok owner ByteDance has also internally looked at the possibility of acquiring a controlling stake in iQIYI, three sources said.

Considered China's equivalent to Netflix Inc, Nasdaq-listed iQIYI has a market capitalisation of $16.4 billion, which values Baidu's 56.2% stake at about $9.2 billion.

Tencent, whose interest in iQIYI was first reported by Reuters in June, believes the company is worth about half of what Baidu wants, said two of the people.

Shares in iQIYI fell 1.7% on Friday.

Baidu, iQIYI and Tencent declined to comment on the deal talks. ByteDance declined to comment on the extent of its interest in iQIYI. Alibaba did not respond to a request for comment.

While it is the No. 2 player in China's video streaming market, cash-burning iQIYI has yet to break even in its 10-year history. Its latest quarterly earnings showed drops in revenue and subscribers, punishing its shares which have lost nearly a fifth of their value in the last two weeks.

It is also being investigated by the U.S. Securities and Exchange Commission after a report in April issued by short-seller Wolfpack Research accused iQIYI of inflating numbers. iQIYI, which is cooperating with the probe, has said an internal review has found no proof of Wolfpack's claims.

The video streaming service, whose cash and cash equivalents almost halved in the nine months to end-September to 3.16 billion yuan ($481 million) plans to raise at least $1 billion in the coming months, said one person with direct knowledge of the matter.

That may take the form of a share offering or a convertible bond or both, the person said, adding, however, that the company's recent share slide has clouded its financing prospects.

iQIYI did not immediately respond to a request for comment on its fundraising plans. Baidu said in a statement that iQIYI, as an independent publicly listed entity, has smooth financing channels in capital markets and its support of iQIYI has not changed.

REGULATORY HEADWINDS

Investing in iQIYI now may be politically difficult for Alibaba and Tencent after Beijing this month unveiled draft guidelines aimed at preventing monopolistic behaviour by internet companies. The draft's scope ranges from big data to payment services.

That came on the heels of the shock move by regulators to slam the brakes on Alibaba affiliate Ant Group's $37 billion IPO just days ahead of its debut in a stunning rebuke for Ant and Alibaba founder Jack Ma.

"After regulators published new fintech and anti-trust rules which will hit Alibaba's business, Alibaba's management is currently reluctant to proceed with big deals," one person said.

Purchasing iQIYI would give ByteDance, which makes most of its profits from short video app Douyin, the Chinese version of TikTok, the opportunity to enter the main market for longer length TV shows and movies.

It does have a separate video platform Xigua, which mainly offers videos of 1-30 minutes, an area it has been planning to step up investment in.

But Baidu, which holds more than 90% of iQIYI's shareholder voting rights, is not likely to consider ByteDance as a buyer given a years-long feud between the two companies in China's digital ad market, said two sources.

The search engine giant's interest in selling its stake in iQIYI comes on the back of a shift in focus to developing artificial intelligence and autonomous driving - areas which require heavy upfront investment.

Tencent Video was ranked the top player in China's video streaming market with a penetration rate of 45% at the end of 2019, followed by iQIYI with 43% and Alibaba's Youku with 27%, according to research firm BlueCatData.

($1 = 6.5670 Chinese yuan)

(Reporting by Julie Zhu in Hong Kong, Yingzhi Yang, Zhang Yan and Yilei Sun in Beijing; Editing by Edwina Gibbs)

By Julie Zhu, Yingzhi Yang, Zhang Yan and Yilei Sun


© Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
ALIBABA GROUP HOLDING LIMITED 3.36% 251.65 Delayed Quote.8.13%
BAIDU, INC. 4.84% 250.42 Delayed Quote.15.81%
IQIYI, INC. -1.37% 19.49 Delayed Quote.11.50%
JIANGSU GIAN TECHNOLOGY CO., LTD. -3.88% 53.81 End-of-day quote.1.89%
NASDAQ COMP. 1.53% 13197.179496 Delayed Quote.0.86%
NETFLIX, INC. 0.76% 501.77 Delayed Quote.-7.21%
TENCENT HOLDINGS LIMITED -0.30% 655 End-of-day quote.16.13%
UNITED STATES DOLLAR (B) / CHINESE YUAN IN HONG KONG (USD/CNH) -0.20% 6.4662 Delayed Quote.-0.03%
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Financials
Sales 2020 481 B 74 318 M 74 318 M
Net income 2020 128 B 19 798 M 19 798 M
Net cash 2020 71 100 M 10 996 M 10 996 M
P/E ratio 2020 41,4x
Yield 2020 0,25%
Capitalization 5 212 B 805 B 806 B
EV / Sales 2020 10,7x
EV / Sales 2021 8,52x
Nbr of Employees 77 592
Free-Float 60,4%
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Technical analysis trends TENCENT HOLDINGS LIMITED
Short TermMid-TermLong Term
TrendsBullishBullishBullish
Income Statement Evolution
Consensus
Sell
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Mean consensus BUY
Number of Analysts 50
Average target price 577,23 CNY
Last Close Price 547,34 CNY
Spread / Highest target 29,1%
Spread / Average Target 5,46%
Spread / Lowest Target -35,5%
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Managers and Directors
NameTitle
Hua Teng Ma Executive Chairman & Chief Executive Officer
Chi Ping Lau President & Executive Director
Yu Xin Ren COO & President-Interactive Entertainment Group
Shek Hon Lo Chief Financial Officer & Senior Vice President
Chen Ye Xu Chief Information Officer
Sector and Competitors
1st jan.Capitalization (M$)
TENCENT HOLDINGS LIMITED16.13%804 668
NETFLIX, INC.-7.21%221 679
PROSUS N.V.9.17%189 618
UBER TECHNOLOGIES, INC.10.39%99 300
NASPERS LIMITED14.26%97 645
SPOTIFY TECHNOLOGY S.A.1.62%60 620