Baidu plans US IPO of Netflix-like unit as sales top estimates

[BEIJING] Baidu plans to list its Netflix-like video streaming service iQiyi on a US exchange as China's biggest search engine posted fourth-quarter sales that topped analyst estimates.

Baidu submitted draft registration documents to the Securities and Exchange Commission although the proposed number of American depositary receipts to be offered hasn't been determined, the company said in a statement on Tuesday. The Beijing-based company expects to remain the controlling shareholder after the initial public offering of the business, which analysts have valued at about US$15 billion.

The planned listing will give iQiyi much-needed financial power at a crucial time as Baidu faces off against larger rivals Tencent Holdings and Alibaba Group Holding in the hugely expensive streaming video market.

Baidu's content costs hit US$2.06 billion in 2017, almost double the US$1.13 billion it spent a year earlier. But expenses are only set to rise with video seen as being vital for keeping users on platform for longer, which in turn generates more ad sales.

"The iQiyi IPO confirmation is positive and we think that video will be a top story in 2018," New Street Research analyst Kirk Boodry said.

"If Baidu gets 15 per cent of the valuation as proceeds of the listing then you're talking about US$1.5 billion to US$2 billion and their content costs are probably in that range now, so it gives them a couple of years of funding."

Baidu's fourth quarter revenue hit 23.6 billion yuan (S$4.9 billion) in the three months ended December, helped by its newsfeed product and search advertising. That compares with the 23.1 billion yuan average of analyst estimates. Baidu's US shares gained more than 5 per cent in extended trading after the results were released.

Net income attributable to Baidu was 4.2 billion yuan, compared with the 3.97 billion yuan that analysts predicted. The company forecast sales in the March quarter of 19.9 billion to 21 billion yuan, slightly missing the 21.2 billion yuan expected by analysts.

The news feed product, which competes with market leader Jinri Toutiao, uses artificial intelligence to decide what content users want to read and has rapidly become a major source of ad revenue.

The long-mooted move to list iQiyi is the latest in a series of efforts to shed costly side businesses and refocus on what it sees as its core strength: products driven by artificial intelligence. It sold control of its unprofitable food delivery business and merged its travel operations into Ctrip.com International Ltd. But unlike many of Baidu's other side businesses, data from QuestMobile and Jefferies show that iQiyi is a market leader, making up 33 per cent of China's online video market when broken down by monthly time spent in December.

A 2016 attempt by chief executive officer Robin Li to buy iQiyi valued the company at US$2.8 billion. That plan failed to get board approval after some shareholders protested the value on the offer. Since then, valuations of the streaming video company have sky-rocketed; both Jefferies and CICC Research value the business at about US$15 billion.

BLOOMBERG