Baidu's iQiyi Drops in Debut After IPO Raising $2.3 Billion

(Bloomberg) -- Shares in iQiyi Inc., a Chinese Netflix-style video streaming service controlled by search giant Baidu Inc., fell slightly in their trading debut after the company raised $2.25 billion in a U.S. initial public offering.

The stock opened at $18.20 in New York on Thursday. Beijing-based iQiyi sold 125 million U.S. depositary shares at $18 apiece, pricing in the middle of the marketed range.

Shares traded down about 1.1 percent at 1:19 p.m. to $17.80, giving iQiyi a market valuation of about $12.6 billion.

iQiyi Chief Executive Officer Yu Gong said in an interview he isn't worried about short-term changes in the stock price because the company is aiming to be a major entertainment player in the long term.

“The share price right now doesn't matter -- be it higher or lower than $18 -- when looking from an eight or 10 years horizon," Gong said.

“I met with over 200 investors on the roadshow. Most of them are concerned about the long-term trend in China's entertainment industry and economy,” he said.

iQiyi is the largest Chinese video streaming service to go public. It's waging an increasingly expensive battle for viewers against Tencent Video and the Alibaba Group Holding Ltd.'s platform Youku Tudou. The money raised will be largely spent on buying and making the content needed to attract more users, and researching new technologies.

Baidu, Alibaba and Tencent Holdings Ltd. are all attracted to the sector because video is a highly ‘sticky' service that attracts users to their platforms. This in turn means they can be served more advertising or converted into customers of other products.

IQiyi's filings showed that 421 million mobile users tuned into the service at least once a month with 126 million logging in at least once a day, making it the most popular Netflix-style video streaming service in China. But users there are fickle thanks to the ease of cancelling subscriptions and Tencent Video's own base was only slightly smaller as of February, according to data from QuestMobile and CICC Research.

“iQiyi may need circa $16 billion of new capital, in equity or debt,” analysts at Bernstein led by Bhavtosh Vajpayee told clients in a note before the listing. “The upcoming IPO is merely a curtain raiser to its likely continued appetite for funding. Brace for it!”

To contact Bloomberg News staff for this story: David Ramli in Beijing at dramli1@bloomberg.net, Jing Yang de Morel in Shanghai at jyang543@bloomberg.net.

To contact the editors responsible for this story: Robert Fenner at rfenner@bloomberg.net, Edwin Chan

©2018 Bloomberg L.P.

With assistance from David Ramli, Jing Yang de Morel