Baidu is trying to IPO its 'Nextflix of the East' to pay for content and protect its balance sheet.

Source: iQiyi Preliminary Prospectus.

Source: iQiyi Preliminary Prospectus.

The best way to describe China based Baidu, is "the Google of the East". It's listed on NASDAQ with an equity capitalisation of around US$87 billion, is huge in Artificial Intelligence (AI) and is seeking to return to its core search/AI business by selling off its other internet 'bets'.

Baidu owns 69.6% of iQiyi, which is effectively a video streaming business that might be described as 'the Netflix of the East'. So far, iQiyi's growth has been reliant on Baidu which has provided technology, infrastructure and financial support.

Netflix and Baidu might be separated by geography and the so-called 'great firewall of China', but they recently entered into a content sharing deal and they both face the identical problem and costs associated with winning the battle for high-end original streaming content.

In an attempt to limit the inevitable drag on its balance sheet but at the same time retain control through a separate class of voting share (sound familiar?), iQiyi recently registered its Preliminary Prospectus to undertake an initial public offering (IPO) of its shares on Nasdaq to raise US$1.5 billion.

Aside from the outrageous US$186,750 registration fee, the document indicates iQiyi had revenues of ~US$2.7 billion equivalent for the year ended 31 December 2017, and a rather modest cash holding of US$110 million.

Compared to Nextflix' commitment to spend US$15.7 billion on original content over the next few years, it's no wonder iQiyi needs to raise money. It is also little wonder that Baidu would be seeking to cut that sort of contingent liability loose, but at the same time retain control of a pure-play streaming platform, powered by Nasdaq rocket fuel.

No doubt there will be changes to the preliminary document and it will be interesting to see where the IPO statistics land.

Still, as the battle for competitive advantage in high-end original content intensifies, so too will global M&A and IPO deal-making in this space.

What next?


NextLevelCorporate delivers independent and transformative corporate advisory and financing solutions to clients looking to reshape their competitive landscapes, in and out of Australia. Our ability to do this comes from ~30 years of sector-specific proprietary intel and the freedom to independently originate and advise on customised Mergers and Acquisitions, IPO & Growth Capital and Special Situation solutions.

You can subscribe to our newsletter here.