Why Tencent Buying iQiyi Could Be a Brilliant Move
According to news outlets citing two people familiar with the matter, online giant Tencent Holdings (OTC: TCEHY) is looking to become the largest shareholder in video-streaming rival iQiyi (NASDAQ: IQ). The latter, as of now, is majority-owned by search-giant Baidu. Tencent Video and iQiyi are the two leading players in the video-streaming war in China, with Tencent most recently reporting 112 million subscribers and iQiyi reporting 119 million subscribers. Alibaba's Youku Tudou came in a close third, and analysts estimate it has between 90 million-100 million subscribers.
Of note, the Chinese video-streaming companies also have free ad-supported content. According to research firm Questmobile, both Tencent and iQiyi had around 500 million monthly active users, with Youku Tudou at roughly 324 million.
It may seem strange in a large industry with only three players, but none of the major streaming outlets are profitable. iQiyi reported a whopping $409 million net loss last quarter, almost double the prior year. Youku Tudou lost about $477 million in adjusted earnings before interest, taxes, and amortization (EBITA) in its digital media and entertainment division. Tencent doesn't break out video earnings individually, but it's also likely in the red, though management noted a gross margin "increase" last quarter on the most recent earnings release.
Source Fool.com
