If iQiyi breaks tonight, I will buy their stock tomorrow.

On the crowded track of the video, after a long marathon of eight years, iQiyi finally took the lead in opening the door to the capital market.

Investment community (WeChat ID: pedaily2012) March 29 news, iQiyi will be listed on the NASDAQ listing tonight, the stock code is "IQ". The IPO issuance of 125 million American Depositary Receipts (1 American Depositary Receipt = 7 ordinary shares), priced at 18 US dollars / share, priced in the middle of the 17 to 19 US dollars range. The first day of the opening report was 20.00 US dollars, up 11.11% over the issue price, with a total market value of 12.739 billion US dollars.

Since February 28, the company has officially submitted the prospectus, updated the prospectus on March 17, and then went on a large-scale roadshow on the US IPO. The official IPO was one week later, but it was only one month before and after. But for this moment, Iqiyi has been waiting for 8 years.

Before Iqiyi officially landed on Nasdaq, iQiyi CEO Gong Yu accepted an interview with the domestic media. He said that although iQiyi is still at a loss, his confidence in future profit comes from the three driving forces— - Brand advertising, paying users, and streaming advertising. “Because the first three drivers have laid the foundation for the next five to eight years of development, Iqiyi can find the fourth or fifth driving force more calmly,” Gong Yu said.

Of course, along with the "American Dream" of iQiyi and founder Gong Yu, the "secret" of the operation of this domestic video website giant is gradually exposed to the public's vision.

This is a historic moment, both for Gong Yu and Iqiyi.

For more than a decade, the video battlefield has been in turmoil, from the rise of traffic channels to the rise of the heroes, to the shackles of burning money and copyright, and then to the capital-driven industry to form several giants, entertainment manufacturers have experienced several rounds of slaughter, the echelon gradually The iQiyi, which stands out from the crowd, is undoubtedly one of the best.

In April 2010, when iQiyi was on the line, Youku, Tudou, Sohu Video, PPTV, PPS, LeTV survived, and set off a wave of capital operation: In November, Youku went public in the US, and took the market value at the closing price on the day of listing. Up to 3.4 billion US dollars; in February of the following year, PPTV received $250 million in financing from Softbank; in April, Tencent video was born with a golden key; in August, potatoes were bleed.

In 2011, the industry integration curtain was opened. Since everyone acquired 56 Net, Youku Tudou, and Baidu acquired PPS video business, many second-line video websites represented by PPTV have been selling well. With the increasing concentration of the industry, the anxiety of the second camp, the insecurity of the first camp, and the rush of capital pushers, the industry that was not calm was surging.

At that time, Gong Yu was "in the opposite direction." Not only did he not follow suit, he wanted to sell his exclusive copyright drama because he felt that buying and broadcasting had more harm than good, and nothing was done after the broadcast. Sure enough, the competition with the drama has been played for less than half a year, and the whole industry has been badly hurt. Iqiyi has stood out at this time.

By the end of 2013, Gong Yu believed that the time had come, and the "killing tricks" continued. First, the price of 200 million yuan to buy off Hunan Taiwan "Daddy where to go" second season, "Happy Camp", "every day" and other five popular variety of exclusive online copyright; then announced "Daddy where to go" the second quarter will Exclusive broadcast, "Do not distribute, do not change drama, do not give away"; then bought the exclusive online copyright of Zhejiang Satellite TV "Running Brothers".

In 2014, the phenomenon-level program "Qi Yu said" with the title of 50 million yuan in the first quarter became the most famous Internet variety show. At the same time, "Tomb Notes", "Soul Ferry", "Hua Qian Bone 2015", "Lushan Wars" and other well-known dramas produced or broadcast, thoroughly cultivated a group of users' payment and copyright awareness.

The outside world does not understand the crazy behavior of iQiyi, but the success of the advertisers and the high ratings of the audience have made everyone praise the foresight of Gong Yu. In the third quarter of 2015, iQiyi achieved a go-ahead against Youku.

Since then, the curtain of “member fees” has been opened, and “home-made” has become the core strategic label of iQiyi. High-quality video content + paid membership services, become the most solid moat of iQiyi. This is the path that iQiyi continues to advance and brings good results.

Advertising has become the biggest source of income for iQiyi. From 2015 to 2016, iQiyi's advertising revenue rose from 3.398 billion to 5.65 billion, up 66.2%; from 2016 to 2017, advertising revenue rose from 5.65 billion to 8.159 billion, up 44.4%. Followed by membership service income. According to the latest data in the prospectus, by the end of February 2018, the number of iQiyi paid members reached 60.1 million, an increase of 9.3 million compared with 50.8 million in 2017.

This means that iQiyi has become one of the most popular video sites in China, slightly lower than Tencent's video, and the number of members is linked to the platform's ability to realize.

This is what Gong Yu is willing to see. After all, too many people who have been involved in this wave have left the scene in advance: LeTV has collided with Jia Yueting and the United States has collapsed; Potatoes have been screenwriters with Wang Wei as the director of the thin day; Youku Gu Yong has stepped down and re-invested.

And sticking to the front line of the video industry, only Gong Yu alone.

Li Yanhong's iQiyi "Bills"

In addition to Gong Yu, Baidu founder Li Yanhong is the biggest hero behind the listing of iQiyi. In the process of iQiyi entrepreneurship, Baidu has always been the key role that cannot be circumvented.

According to the prospectus, Baidu holds 2.939 billion shares of iQiyi, accounting for 69.6% of the total share capital, and is the largest shareholder of iQiyi. Xiaomi United is holding 8.4% of the shares in the capital and is the second largest shareholder; HH RSV-V Holdings Limited, a subsidiary of Gaochun Capital, holds 5.7% and becomes the third largest shareholder.

In addition, Sequoia China, which has been fully integrated in cultural content, is also an important shareholder of iQiyi.

Qihe Capital is the latest investor in iQiyi. “Video is the longest direction people spend in the cultural entertainment industry. It is a track with great potential. Gong Yu is a typical Tsinghua engineering man and a rare entrepreneur. The strategic thinking is clear and the implementation is in place. For Iqiyi, whether it is direction, business or team, from the Baidu period, Tang Hesong is very recognized. Therefore, after the establishment of Qihe Capital, Tang Hesong once again invested in iQiyi.

Yiqiyi founder and CEO Gong Yu only owns 1.8% of the shares, which is lower than expected.

The number of shares issued and the price are not indicated in the prospectus, but some analysts believe that the highest valuation of iQiyi is nearly 10 billion US dollars. According to this calculation, after the listing of iQiyi, Baidu, which holds nearly 70% of the shares, will become the biggest winner. The value of its shares will be converted into RMB up to RMB 44 billion. The value of other important investors, Xiaomi and Gaochun Capital, will also be converted. More than 5 billion and 3.6 billion yuan respectively, and the founder of Aiqiyi Gong Yu is also expected to have more than 1 billion yuan of wealth.

In April 2010, Baidu invested 50 million US dollars in Aiqiyi; in August and December 2011, Baidu spent $45 million to subscribe to iQiyi B-round preferred stock, and on November 3, 2012, acquired the original Aiqi The second largest shareholder of the company, Providence, became its single largest shareholder; in 2013, Baidu spent $370 million to acquire PPS to realize the merger of PPS and iQiyi; on November 19, 2014, Baidu was iQiyi Introduce Xiaomi and Shun Investment, and add a US$300 million investment in iQiyi.

In February 2016, the two proposed to acquire 80.5% of the entire issued shares of iQiyi held by Baidu on the basis of all the 2.8 billion valuations of iQiyi; if the matter is successful, iQiyi will become Li Yan. Hong and Gong Yu led the private holding company of the buyer consortium.

In July 2016, Li Yanhong and Gong Yu sent a letter to the Baidu Board of Directors on behalf of the buyer consortium, announcing the withdrawal of the previously proposed Iqiyi privatization offer.

The members of the iQiyi board of directors proposed the acquisition offer to the major shareholder Baidu, and the use of MBO (management buyout) to lift the VIE structure can be understood as a prelude to the iQiyi began to enter the domestic capital market. Gong Yu had revealed at the end of 2015 that the company was dismantling the VIE structure and preparing for domestic listing. The reason for not going to the US market is that the industry value has not been fully understood by US investors, and the value of Youku Tudou (the predecessor of Heyi Group) listed in the US is seriously underestimated.

The good things are always greasy, from the privatization announced in 2016 to the privatization after a few months, from the initial development of the domestic strategy emerging board to the change of the Hong Kong Stock Exchange as the preferred place for listing, after some turn around, the founder of Aiqiyi Gong Yu eventually chose the US stocks.

Of course, this is not entirely helpless. Gong Yu has more far-reaching considerations. After all, iQiyi is currently a loss-making technology stock, and US stocks are the global market. Compared with the A-shares that require profit, they pay more attention to long-term value investment, which is the best choice for iQiyi.

For Baidu, the major shareholder, the successful spin-off of Aiqiyi and its delivery to the capital market will greatly reduce the cost of content for the Iqiyi blood transfusion. In the short-term, the listing of iQiyi will benefit Baidu's stock price, which may soon exceed 100 billion US dollars.

As for the relationship between the two parties after listing, iQiyi listed four potential conflicts of interest with Baidu in the prospectus, including: First, there may be conflicts of interest between directors. Aiqiyi directors Li Yanhong, Lu Qi and Yu Zhengyi are also Baidu executives. When these people face decisions that may have different influences on Baidu and iQiyi, there may be conflicts of interest. Second, sell company stocks. For example, when selling shares to third parties, especially competitors, it will have a substantial impact on the company's business. Third, it is impossible to conduct business with Baidu competitors. Fourth, the distribution of business opportunities.

It can be seen that if the interests of iQiyi conflict with the interests of Baidu, then everything takes precedence over Baidu’s interests. This will probably lay a time bomb for the independent development of iQiyi's future. After all, there was no precedent. In 2015, Baidu had promoted the merger of Ctrip and Ctrip as a major shareholder.

How long does it take to compete with Netflix, "Chinese apprentice" iQiyi?

In the United States, content payment is the trend of the times, and a large number of content companies have also listed. Many US investors have previously missed Netflix, a US-listed US-listed company similar to iQiyi. For investors, now iQiyi may be a new opportunity for them to increase their investment portfolio. A potential stock of the same type as Netflix.

All along, domestic video sites are closely watching Netflix's business model, and the most active against Netflix is ​​Iqiyi. By the end of February 2018, iQiyi paid 60.1 million members. Although this number is currently only half of Netflix's 120 million paid members, it is the second largest domestic video website from public data. Moreover, both iQiyi and Netflix have cooperated in the copyright of film and television dramas in recent years.

In the future, in the capital market, can iQiyi compete with Netflix?

Generally speaking, there are two reasons for the growth of video website members. First, relying on high-quality content, the drama is the most important factor driving the growth of paying members; second, the market, promotion and other behaviors have increased the number of users.

An industry insider analyzed the investment community. “Al Qiyi has experienced high-quality IP in the past six months, but the number of paid members that are driven by this is difficult to reach tens of millions. Iqiyi is relying on market behavior to promote the number of members. Growing rapidly."

However, the substantial increase in the number of paid members has indeed had a direct impact on iQiyi’s revenue. According to the prospectus, iQIYI's 2017 member service revenue was RMB 6.536 billion, an increase of 73.7% from RMB 3.762 billion in 2016 and RMB 996.7 million in 2015.

Although iQiyi, which is still losing money, has a large gap in profitability with Netflix, the income gap between the two is shrinking year by year. As of 2017, Netflix's revenue is only four times that of iQiyi, and the 12-fold valuation gap between the two also indicates the huge growth potential of iQiyi.

The long-term competition between iQiyi and Netflix, the long-term competition of video websites, is behind the BAT giants.

In recent years, the financial capital behind the video sites has withdrawn, and the weaker industrial capital has gradually withdrawn. Since its development, the biggest video giants, iQiyi, Youku, Tencent, and the “left behind” are BAT. This is because, in terms of willingness, financial capital cannot tolerate a long-term return process and can only opt out. In terms of ability, only BAT-level capital can bear such huge and long-term losses in industrial capital.

This is a typical prisoner's dilemma.

For Netflix, which has a market value of over 100 billion overseas, domestic video sites are at least 50 billion US dollars. No one in BAT can tolerate another family to control the video industry and form a big one.

If you can form a tacit understanding of "do not invest", then each is safe and sunny. But if the other two choose "not to invest", then there must be one who becomes a bowman.

The investment capacity of BAT is also rapidly increasing. As the loss tolerance increases, the loss may further expand. Tencent's public financial report recently, the annual revenue of 2017 was 237.76 billion yuan, an increase of 56% over the same period of last year. Ali's performance is even more important. Although Baidu's performance has grown slowly, the recent information flow business will probably become the future one. Large increments. And iQiyi's listing of US stocks has further enhanced its capital strength.

That is to say, when capital is still pursuing this industry, the industry will continue to struggle in the loss. When capital finally couldn’t stand it and began to withdraw, China’s Netflix is ​​just around the corner.

This article is the original investment community, Author: Rica

(Editor: Cui Zhiming HF118)