Tencent Q4 profit disappoints, but cloud and payments gain ground

China’s Tencent reported disappointing profits in the fourth quarter on the back of surging costs but saw emerging businesses pick up steam as it plots to diversify amid slackening gaming revenues.

Net profit for the quarter slid 32 percent to 14.2 billion yuan ($2.1 billion), behind analysts’ forecast of 18.3 billion yuan. The decrease was due to one-off expenses related to its portfolio companies and investments in non-gaming segments like video content and financial technology.

Excluding non-cash items and M&A deals, Tencent’s net profit from the period rose 13 percent to 19.7 billion yuan ($2.88 billion). The company has to date invested in more than 700 companies, 100 of which are valued over $1 billion each and 60 of which have gone public.

Quarterly revenue edged up 28 percent to 84.9 billion yuan ($12.4 billion) beating expectations.

The Hong Kong-listed company is best known for its billion-user WeChat messenger but had for year relied heavily on a high-margin gaming business. That was until a months-long freeze on games approvals last year that delayed monetization for new titles, spurring a major reorg in the firm to put more focus on enterprise services, including cloud computing and financial technology.

Tencent has received approvals for eight games since China resumed the licensing process, although its blockbusters PlayerUnknown Battlegrounds and Fortnite have yet to get the green light. The firm also warned of a ”sizeable backlog“ for license applications in the industry, which means its “scheduled game releases will initially be slower than in some prior years.”

Video games for the quarter contributed 28.5 percent of Tencent’s total revenues, compared to 36.7 percent in the year-earlier period. Despite the domestic fiasco, Tencent remains as the world’s largest games publisher by revenue according to data compiled by NewZoo. The firm has also gotten more aggressive in taking its titles global.

Social network revenues rose 25 percent on account of growth in live streaming and video subscriptions. The segment made up 22.9 percent of total revenues. Tencent has in recent years spent heavily on making original content and licensing programs as it competes with Baidu’s iQiyi video streaming site. Tencent claimed 89 million subscribers in the latest quarter, compared with iQiyi’s 87.4 million.

Tencent has been relatively slow to monetize WeChat in contrast to its western counterpart Facebook, though it’s under more pressure to step up its game. Tencent’s advertising revenue from the quarter grew 38 percent thanks to expanding advertising inventory on WeChat. Ads accounted for 20 percent of the firm’s quarterly revenues.

All told, WeChat and its local version Weixin reached nearly 1.1 billion monthly active users. 750 million of them checked their friends’ WeChat feeds, and Tencent recently introduced a Snap Story-like feature to lock users in as it vies for eyeball time with challenger TikTok.

The “others” category comprising of financial technology and cloud computing grew 71.8 percent to generate 28.5 percent of total revenues. WeChat’s e-wallet, which is going neck-and-neck with Alibaba affiliate Alipay, saw daily transaction volume exceed 1 billion last year. During the fourth quarter, merchants who used WeChat Pay monthly grew over 80 percent year-over-year.

Meanwhile, cloud revenues doubled to 9.1 billion yuan in 2018, thanks to Tencent’s dominance in the gaming sector as its cloud infrastructure now powers over half of the China-based games companies and is following these clients overseas. Tencent meets Alibaba head-on again in the cloud sector. For comparison, Alibaba’s most recent quarterly cloud revenue was 6.6 billion yuan. Just yesterday, the ecommerce leader claimed that its cloud business is larger than the second to eight players in China combined.

PicsArt hits 130 million MAUs as Chinese flock to its photo editing app

If you’re like me, who isn’t big on social media, you’d think that the image filters that come inside most apps will do the job. But for many others, especially the younger crowd, making their photos stand out is a huge deal.

The demand is big enough that PicsArt, a rival to filtering companies VSCO and Snapseed, recently hit 130 million monthly active users worldwide, roughly a year after it amassed 100 million MAUs. Like VSCO, PicsArt now offers video overlays though images are still its focus.

Nearly 80 percent of PicsArt’s users are under the age of 35 and those under 18 are driving most of its growth. The “Gen Z” (the generation after millennials) users aren’t obsessed with the next big, big thing. Rather, they pride themselves on having niche interests, be it K-pop, celebrities, anime, sci-fi or space science, topics that come in the form of filters, effects, stickers and GIFs in PicsArt’s content library.

“PicsArt is helping to drive a trend I call visual storytelling. There’s a generation of young people who communicate through memes, short-form videos, images and stickers, and they rarely use words,” Tammy Nam, who joined PicsArt as its chief operating officer in July, told TechCrunch in an interview.

PicsArt has so far raised $45 million, according to data collected by Crunchbase. It picked up $20 million from a Series B round in 2016 to grow its Asia focus and told TechCrunch that it’s “actively considering fundraising to fuel [its] rapid growth even more.”

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PicsArt wants to help users stand out on social media, for instance, by virtually applying this rainbow makeup look on them. / Image: PicsArt via Weibo

The app doubles as a social platform, although the use case is much smaller compared to the size of Instagram, Facebook and other mainstream social media products. About 40 percent of PicsArt’s users post on the app, putting it in a unique position where it competes with the social media juggernauts on one hand, and serving as a platform-agnostic app to facilitate content creation for its rivals on the other.

What separates PicsArt from the giants, according to Nam, is that people who do share there tend to be content creators rather than passive consumers.

“On TikTok and Instagram, the majority of the people there are consumers. Almost 100 percent of the people on PicsArt are creating or editing something. For many users, coming on PicsArt is a built-in habit. They come in every week, and find the editing process Zen-like and peaceful.”

Trending in China

Most of PicsArt’s users live in the United States, but the app owes much of its recent success to China, its fastest growing market with more than 15 million users. The regional growth, which has been 10-30 percent month-over-month recently, appears more remarkable when factoring in PicsArt’s zero user acquisition expense in a crowded market where pay-to-play is a norm for emerging startups.

“Many larger companies [in China] are spending a lot of money on advertising to gain market share. PicsArt has done zero paid marketing in China,” noted Nam.

Screenshot: TikTok-related stickers from PicsArt’s library

When people catch sight of an impressive image filtering effect online, many will inquire about the toolset behind it. Chinese users find out about the Armenian startup from photos and videos hashtagged #PicsArt, not different from how VSCO gets discovered from #vscocam on Instagram. It’s through such word of mouth that PicsArt broke into China, where users flocked to its Avengers-inspired disappearing superhero effect last May when the film was screening. China is now the company’s second largest market by revenue after the U.S.

Screenshot: PicsArts lets users easily apply the Avengers dispersion effect to their own photos

A hurdle that all media apps see in China is the country’s opaque guidelines on digital content. Companies in the business of disseminating information, from WeChat to TikTok, hire armies of content moderators to root out what the government deems inappropriate or illegal. PicsArt says it uses artificial intelligence to sterilize content and keeps a global moderator team that also keeps an eye on its China content.

Despite being headquartered in Silicon Valley, PicsArt has placed its research and development center in Armenia, home to founder Hovhannes Avoyan. This gives the startup access to much cheaper engineering talents in the country and neighboring Russia compared to what it can hire in the U.S. To date, 70 percent of the company’s 360 employees are working in engineering and product development (50 percent of whom are female), an investment it believes helps keep its creative tools up to date.

Most of PicsArt’s features are free to use, but the firm has also looked into getting paid. It rolled out a premium program last March that gives users more sophisticated functions and exclusive content. This segment has already leapfrogged advertising to be PicsArt’s largest revenue source, although in China, its budding market, paid subscriptions have been slow to come.

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PicsArt lets users do all sorts of creative work, including virtually posing with their idol. / Image: PicsArt via Weibo

“In China, people don’t want to pay because they don’t believe in the products. But if they understand your value, they are willing to pay, for example, they pay a lot for mobile games,” said Jennifer Liu, PicsArt China’s country manager.

And Nam is positive that Chinese users will come to appreciate the app’s value. “In order for this new generation to create really differentiated content, become influencers, or be more relevant on social media, they have to do edit their content. It’s just a natural way for them to do that.”

Camera maker Insta360 raises $30M as it eyes 2020 IPO

Insta360, one of the pioneers in making 360-degree cameras, just raised $30 million in a Series C+ funding round from Chinese investors, including Everest Venture Capital, MG Holdings and Huajin Capital.

The Shenzhen-based camera maker declined to disclose its latest valuation. It plans to use the fresh proceeds in research and development, marketing and after-sales services in its key international markets, including the United States and Japan, which are the company’s second and third-largest markets behind China.

Some of its past backers include IDG Capital, Qiming Ventures, home appliance maker Suning Holdings Group and file-sharing service Xunlei.

The company started making 360-degree cameras — thus the brand name — in 2014 when founder Liu Jingkang saw a gap in the market for compact, easy-to-use cameras shooting high-definition 360-degree footage. Over the years it has evolved into a four-pronged business covering all sorts of needs: 360-degree cameras for professionals and amateur users creating virtual reality content, action cameras for sports lovers and smartphone accessories for average consumers.

In stark contrast to loss-making GoPro, which Insta360 rivals in the action camera vertical, the Chinese firm has been profitable since 2017 and is planning to file for an initial public offering in China next year, Liu told TechCrunch in an interview. The company declined to provide more details of the planned flotation but said the success of its action camera line has helped it achieve five-times revenue growth in two years and reach profitability.

From professionals to amateurs

Though the VR sector remains in its infant stage, Liu is optimistic that 360 content will become a much sought-after media form in the years to come.

“Many families will be consuming virtual reality content for entertainment in the future, so we have a huge market for 360 content. That’s why we make a 360 camera each year to keep our top-tier position,” said Liu.

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The Insta360 One X / Photo: Insta360

The action-camera market, by comparison, is more mature. Insta360 is riding a larger social trend of live blogging and short-form videos that has generated a huge demand for quality video content. Dozens of camera options, from Snap Spectacles to Tencent’s clone of the Snap glasses, are available to help people churn out content for video-sharing apps, but Liu saw problems in many of these products.

“[Video-shooting] spectacles, for examples, are quite offensive. Not everyone wants to wear them,” said the founder. “Many cameras do a bad job at video stabilization, so people end up with unusable footage. Lastly, and this is the key issue, users don’t know how to handle their footage.”

To that end, Insta360’s latest answer to documenting sports events and traveling is a camera that can easily be held by hand or slipped into a pocket. Called the One X, the gadget shoots in 5.7K resolution at 30 frames per second, delivering pleasingly smooth stabilization even when thrown around. The camera also comes with a software toolkit that automatically selects and stitches together users’ footage, which makes sharing to TikTok and Instagram a cinch. Check out TechCrunch’s review of One X below:

Insta360 has also been chasing after the masses, and its latest bid is an add-on lens that can instantly turn an iPhone into a 360-degree camera. The idea is that as users get a taste of the basic 360-degree experience, they may want to upgrade to a higher-end model.

“Insta360 has a rare ability to take cutting-edge imaging tech and put it into products that consumers want to use today,” said Gavin Li, senior director at Huajin Capital. “They’re moving faster and innovating more than their competitors, and they’re taking bold new approaches to the defining communication tool of our time: the camera.”

Xiaomi Q4 sees strong growth in overseas shipment and internet services

Xiaomi, the Chinese company known for its cheap handsets and a vision to drive revenues by selling internet services, has come in ahead of analysts’ estimates in its fourth-quarter profit although revenues missed expectations.

The Hong Kong-listed company more than tripled its net profit to 1.85 billion yuan ($276 million), exceeding the 1.7 billion yuan average estimate, Reuters reported citing Refinitiv data. However, revenue from the quarter missed the 47.4 billion yuan expectation, rising 26.5 percent to 44.4 billion yuan ($6.62 billion).

Xiaomi singled out overseas markets in its latest earnings report as the segment grew 118.1 percent to make up 40 percent of its total revenue in the fourth quarter, compared with just 28 percent for the year-earlier period. Xiaomi has been particularly well-received in India, where it holds a leading position in smartphone shipments according to market researcher Canalys, and it’s seeing rapid growth in western Europe.

Unlike conventional smartphone makers that are fixated on selling hardware, Xiaomi runs what it calls a “triathlon” business model comprising of hardware, software and retail. To put it in layman’s terms, the company is selling hardware through its network of online and offline stores, upon which users will consume the app services and in-app ads that come with its smartphones, smartwatches, smart air purifiers and hundreds of other connected devices.

Xiaomi has repeatedly billed itself as an “internet” firm, though so far smartphones are still its main economic driver, accounting for 65.1 percent of overall revenue in Q4. Despite a sluggish year for smartphone brands around the world, Xiaomi handsets grew nearly 30 percent to 118.7 million units in sales last year. The company predicted back in October that it was on course to hit the 100 million sales mark that month.

25.1 percent of Xiaomi’s Q4 revenue went to smart devices (excluding phones) and lifestyle items, representing an 87 percent year-over-year growth. The latter category, which ranges from umbrellas and suitcases to clothes and shoes, is pivotal to Xiaomi’s goal to attract more female users, an effort that has seen the company team up with selfie app maker Meitu. 

Internet services remain as Xiaomi’s smallest segment, bringing in only 9.1 percent of total revenue and growing at 61 percent year-over-year. But the highly lucrative business is bound to carry more load in the future as Xiaomi has promised to keep profit margins for smartphones and hardware under 5 percent.

Gross profit margin from Xiaomi’s internet services increased to 64.4 percent in 2018, up from 60.2 percent in 2017 driven by a higher-margin advertising business. The number is well above the 6.2 percent profit margin for Xiaomi smartphones, and the firm can potentially generate more internet-based income if it’s able to step up monetization of the 242.1 million monthly users on its ecosystems apps.

The headline has been corrected.

TikTok parent Bytedance is getting serious about games

A turbulent 2018 for China’s gaming market hasn’t held back newcomers. Bytedance, the world’s most valuable startup behind a collection of rising new media apps including TikTok and Jinri Toutiao, is making a further push into video games after it took control of a mobile game developer through a roundabout deal.

According to a business registration filing, Shanghai Mokun has become wholly owned by Beijing Zhaoxi Guangnian, a second-tier subsidiary of Bytedance. Mokun is a mobile game developer previously owned by 37 Interactive Entertainment, a publicly listed games publisher that earmarked $791 million in revenue last year, which makes the Shanghai-based company about one-sixth the size of Activision Blizzard.

Zhang Lidong, a veteran journalist-turned senior vice president at Bytedance, has taken the helm as Mokun’s legal representative.

The price of the deal is undisclosed. A spokesperson from Bytedance declines to comment on the transaction. TechCrunch has reached out to 37 IE and will update the story if we hear back.

This isn’t the first time Bytedance has shown interest in the lucrative gaming market. Last month, TikTok’s Chinese version Douyin released its first in-app “mini-game” and Toutiao had already rolled out such lite games on its personalized news distribution platform in September.

These stripped-down forms of apps within a super app have been a sought-after way for Chinese tech giants to lock users in rather than sending them to download a stand-alone app. Bytedance’s foray into mini-games comes as a likely move to take on Tencent’s WeChat messenger, which had amassed 400 million MAUs on its own army of mini-games by January. On the other hand, Tencent is getting nervous about ByteDance’s rise and made inroads into short videos after trying its hand at several TikTok-like apps.

Though best-known for WeChat, Tencent has been generating the bulk of its income from video games for years and is the world’s largest games publisher by revenues, according to market researcher Newzoo. Tencent’s asset of more than 1 billion MAUs on WeChat and about 800 million MAUs on QQ, its legacy messenger from the PC era, allows the giant to conveniently convert social media users into gamers. Users can, for instance, easily log in and invite friends to play games via their WeChat or QQ accounts.

By comparison, 500 million users stream short-form videos on Douyin each month. Many of them may have already seen in-stream ads for games on the video app, which has become a popular marketing channel for small game developers, according to several media-buying agencies TechCrunch previously spoke to. Worldwide, TikTok has collected an estimated 1 billion downloads. This considerable global reach, which Tencent lacks, may eventually give Bytedance an edge in games distribution if the company decides to launch the effort overseas.

This YC-backed startup preps Chinese students for US data jobs

In recent years, data analysts have gone from optional to a career that holds great promise, but demand for quantitative skills applied in business decisions has raced ahead of supply as college curriculum often lags behind the fast-changing workplace.

CareerTu, a New York-based startup launched by a former marketing manager at Amazon, aims to close that talent gap. Think of it as Codecademy for digital marketing, data analytics, product design and a whole lot of other jobs that ask one to spot patterns from a sea of data that can potentially boost business efficiency. The six-year-old profitable business runs a flourishing community of 160,000 users and 500 recruiting patners including Amazon, Google and Alibaba, an achievement that has secured the startup a spot at Y Combinator’s latest batch plus a $150,000 check from the Mountain View-based accelerator.

In a way, CareerTu is helping fledgling tech startups on a tight budget train ready-to-use data experts. “American companies have a huge demand for digital marketing and data talents these days … but not all of them want to or can spend money on training, and that’s where we can come in,” said Xu, who made her way into Amazon after burying herself in online tutorials about digital marketing.

The gig was well paid, and Xu felt the urge to share her experience with people like her — Chinese workers and students seeking data jobs in the U.S. She took up blogging, and eventually grew it into an online school. CareerTu offers many of its classes for free while sets aside a handful of premium content for a fee. 6,000 of its users are actively paying, which translates to some $500,000 in revenue last year. The virtual academy continues to blossom as many students return to become mentors, helping their Chinese peers to chase the American dream.

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Y Combinator founder Paul Graham (second left) with CareerTu founder Zhang Ruiwan (second right) and her team members / Photo: CareerTu

Securing a job in the U.S. could be a daunting task for international students, who must convince employers to invest the time and money in getting them a work visa. But when it comes to courting scare data talents, the visa trap becomes less relevant.

“Companies could have hired locals to do data work, but it’s very difficult to find the right candidate,” suggested Xu. LinkedIn estimated that in 2018 the U.S. had a shortage of more than 150,000 people with “data science skills,” which find application not just in tech but also traditional sectors like finance and logistics.

“Nationalities don’t matter in this case,” Xu continued. “Employers will happily apply a work visa or even a green card for the right candidate who can help them save money on marketing campaigns. And many Chinese people happen to have a really strong background in data and mathematics.”

A Chinese business in the US

Though most of CareerTu’s users live in the U.S., the business is largely built upon WeChat, Tencent’s messaging app ubiquitous among Chinese users. That CareerTu sticks to WeChat for content marketing, user acquisition and tutoring is telling of the super app’s user stickiness and how overseas Chinese are helping to extend its global footprint.

And it makes increasing sense to keep CareerTu within the WeChat ecosystem after Xu noticed a surge in inquiries coming from her homeland. In 2018, only 5 percent of CareerTu’s users were living in China, many of whom were export sellers on Amazon. By early 2019, the ratio has shot up to 12 percent.

Xu believes there are two forces at work. For one, Chinese exporters are leaving Amazon to set up independent ecommerce sites, efforts that are in part enabled by Shopify’s entry into China in 2018. The alternative path provides merchants more control over branding, margins and access to customer insights. Breaking up with the ecommerce titan, on the other hand, requires Chinese sellers to get savvier at reaching foreign shoppers, expertise that CareerTu prides itself on.

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CareerTu offers online courses via WeChat / Photo: CareerTu

Next door, large Chinese tech firms are increasingly turning abroad to fuel growth. Bytedance is possibly the most aggressive adventurer among its peers in recent years, buying up media startups around the world including Musical.ly, which would later merge with TikTok. Indeed, some of CareerTu’s recent grads have gone on to work at the popular video app. Rising interest from China eventually paved Zhang’s way home as she recently set up her first Chinese office in her hometown Chengdu, the laid-back city known for its panda parks and witnessing a tech boom.

Just as foreign companies need crash courses on WeChat before entering China, Chinese firms going global must familiarize themselves with the marketing mechanisms of Facebook and Google despite China’s ban on the social network and search engine.

When American companies growth hack, they make long-term plans that involve “model building, A/B testing, and making discoveries from big data,” observed Xu. By comparison, Chinese companies fighting in a more competitive landscape are more agile and opportunist as they don’t have the time to ponder or test out the different variants in a campaign.

“Going abroad is a great thing for Chinese companies because it sets them against their American counterparts,” said Xu. “We are teaching Chinese the western way, but we are also learning the Chinese way of marketing from players like Bytedance. I’m excited to see in a few years whether any of these Chinese companies abroad will become a local favorite.”

Surging costs send shares of ecommerce challenger Pinduoduo down 17 percent

China’s new tech force Pinduoduo is continuing its race to upend the ecommerce space, even at the expense of its finances. The three-year-old startup earmarked some big wins from the 2018 fiscal year, but losses were even greater, dragging its shares down 17 percent on Wednesday after the firm released its latest earnings results.

The Shanghai-based company is famous for offering cheap group deals and it’s able to keep prices down by sourcing directly from manufacturers and farmers, cutting out middleman costs. In 2018, the company saw its gross merchandise value, referring to total sales regardless of whether the items were actually sold, delivered or returned, jump 234 percent to 471.6 billion yuan ($68.6 billion). Fourth-quarter annual active buyers increased 71 percent to 418.5 million, during which monthly active users nearly doubled to 272.6 million.

These figures should have industry pioneers Alibaba and JD sweating. In the twelve months ended December 31, JD fell behind Pinduoduo with a smaller AAU base of 305 million. Alibaba still held a lead over its peers with 636 million AAUs, though its year-over-year growth was a milder 23 percent.

But Pinduoduo also saw heavy financial strain in the past year as it drifted away from becoming profitable. Operating loss soared to 10.8 billion ($1.57 billion), compared to just under 600 million yuan in the year-earlier period. Fourth-quarter operating loss widened a staggering 116 times to 2.64 billion yuan ($384 million), up from 22 million yuan a year ago.

Pinduoduo is presenting a stark contrast to consistently profitable Alibaba, which generates the bulk of its income from charging advertising fees on its marketplaces. This light-asset approach grants Alibaba wider profit margins than its arch-foe JD, which controls most of the supply chain like Amazon and makes money from direct sales. Pinduoduo seeks out a path similar to Alibaba’s and monetizes through marketing services, but its latest financial results showed that mounting costs have tempered a supposedly lucrative model.

Where did the ecommerce challenger spend its money? Pinduoduo’s total operating expenses from 2018 stood at 21 billion yuan ($3 billion), of which 13.4 billion yuan went to sales and marketing expenses such as TV commercials and discounts for users. Administration alongside research and development made up the remaining costs.

Pinduoduo’s spending spree recalls the path of another up-and-coming Chinese tech startup, Qutoutiao . Like Pinduoduo, Qutoutiao has embarked on a cash-intensive journey by burning billions of dollars to acquire users. The scheme worked, and Qutoutiao, which runs a popular news app and a growing e-book service, is effectively challenging ByteDance (TikTok’s parent company) in smaller Chinese cities where many veteran tech giants lack dominance.

Offering ultra-cheap items is a smart bet for Pinduoduo to lock in price-intensive consumers in unpenetrated, smaller cities, but it’s way too soon to know whether this kind of expensive growth will hold out long-term.

China’s Qutoutiao is burning millions of dollars to take on TikTok parent

Chinese startup Bytedance is finding itself surrounded by challengers as its empire of new media products, including global video app TikTok and Chinese news aggregator Jinri Toutiao, gather steam. Tencent tried to play catch-up with a handful of new short-video services, and a Facebook clone of TikTok was reportedly in the making.

Less famous players also tried to take on Bytedance, but the costs of keeping up with the world’s most valuable startup are high. One company that’s made its mark is Qutoutiao, which is pronounced “chew-tow-ti-ow” and means “fun headlines” in Chinese.

Like ByteDance, the Shanghai-based company began as a news aggregator banking on personalized content often characterized by gossipy news and viral videos. By the time Qutoutiao debuted in 2016, Jinri Toutiao had more than 40 million daily users and was fast growing by feeding people what they wanted. Qutoutiao needed something more than just clickbaits and the solution was a costly scheme that rewards users with cash prizes for consuming more content and getting their friends to sign up.

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Screenshots of the Qutoutiao app, which is characterized by clickbait content akin to those on Jinri Toutiao

The startup was able to play the expensive game on account of sizable fundings. Before pushing ahead with an $84 million initial public offering in the U.S. last September, the firm had secured $242 million from backers including Tencent. All that capital arrived within two years since its launch, and much of the money went to acquiring and retaining users.

In its fourth quarter, sales and marketing expenses soared 463 percent to almost $200 million. Revenues climbed 484 percent to $440 million in 2018, but the increase was tempered by the firm’s skyrocketing net loss, which widened to $283 million compared with $14.3 million just a year ago.

qutoutiao loss

So far the spending spree appears to be paying off. In the three months ended December 31, monthly active users nearly tripled to 93.8 million, the company claims in its latest financial results. People spent an average of 63 minutes on the firm’s services each day over the quarter, doubling from about 30 minutes in the year-earlier period.

Bytedance’s Jinri Toutiao is still ahead by a large margin with 2.4 billion MAUs in 2018, although that’s the result of six years in operation. TikTok, on the other hand, has collected over 1 billion downloads worldwide. But Bytedance, too, is hemorrhaging money over its ambitious global vision. It lost a staggering $1.2 billion last year, The Information reported earlier citing sources.

Small-town base

In the long run, Qutoutiao vows to improve its margins by “controlling user engagement expenses,” chief executive and founder Tan Siliang, who previously worked at Yahoo China and games publisher Shanda as a senior engineer, told analysts last week on a conference call. “As our user base continues to expand, our user acquisition expenses as a percentage of revenues will decline.”

The company is also aiming high. Last week, Tan said in an internal meeting that he believes “Qutoutiao will quickly rise to become a Top 10 internet company in China by 2019,” multiple Chinese outlets reported. To that end, the boss plans to double the company size by adding 2,000 staff this year, a move that contrasts with large-scale layoffs that have recently shaken up Chinese tech heavyweights like NetEase.

We’ve reached out to Qutoutiao for comments on the reports and will update the story when we hear back.

What’s also notable about Qutoutiao is its overwhelmingly small-town base, areas that China’s tech giants increasingly covet as markets in large urban centers reach saturation. The company says 70 percent of its users live in cities that are Tier 3 and below, far and remote from megacities Beijing, Shanghai and the likes.

“[Small-town residents] used to rely predominantly on TV for news. Now with Qutoutiao, they could obtain much more timely, personalized and diverse news and information and, as a result, become frequent readers,” said Tan on the call. “The Qutoutiao app has total installations of about 300 million so far, which still has considerable further penetration potential given a 1 billion population that live in Tier 3 and below cities.”

Like Bytedance, Qutoutiao has branched out to other media forms. It also runs Midu, an e-book app that has collected 5 million users by providing a more thoughtful alternative to its clickbait-filled news app. More recently, the company trailed Bytedance’s to test out a short video service, which hasn’t officially launch but will make a big push in the second quarter. And the startup is ready to splurge if the app grows large enough to face off TikTok.

“On the short video side, it is hard to give an estimated budget on the marketing side because it really depends on how popular or what kind of traction it receives with users,” said chief financial executive Wang Jingbo during last week’s conference call. “In case it has very strong traction with users such as TikTok, we will definitely be spending much more on the marketing side.”

Meituan confirms Mobike’s retreat from most overseas markets

TechCrunch reported last Friday that Mobike has scrapped operations across the Asia Pacific region as a key step towards a long-term plan to scale back its international business. On Monday, its parent company Meituan confirmed that the pioneer in China’s bike rental sector will shut down most of its foreign markets.

“Mobike international business is undergoing restructuring, which will result in the closure of most international markets,” Meituan’s chief financial executive Chen Shaohu told analysts on a conference call on Monday.

The decision came as Meituan plans to further narrow the operating loss of Mobike, added the executive. Mobike has lost 4.55 billion yuan ($680 million) since April 4, 2018 when Meituan, the app that aspires to be the “Amazon for services”, bought it out. That compares to the 1.5 billion yuan ($220 million) the bike service generated in revenues over the same period, notes Meituan’s earnings latest report.

Backpedaling from foreign markets is also consistent with Meituan’s long-held strategy to stay focus on China. The Beijing-based firm earns most of its income by ferrying food and providing travel booking services inside its home country, and international expansion never seemed to be on the cards.

“Meituan has no international division of any shape or form and probably doesn’t want one, and when it acquired Mobike, it acquired the international arm,” the Financial Times reported earlier citing sources.

When inquired by TechCrunch on Monday about its international plans for Mobike, Meituan curiously directed us to the bike business. A spokesperson from Mobike confirmed it will shut down “in some markets, particularly in certain Asia countries” but “international operations will continue in North-East Asia, Latin America and Europe.”

“Looking ahead, we are continuing discussions with potential strategic partners to maintain sustainable International business,” the spokesperson added.

Tipsters who told us about Mobike’s withdrawal from APAC found the statement “vague” and saw it as a gesture to placate the public. One needs to also remember that APAC is Mobike’s major foreign market, so a retreat from the region is a telling sign of the bike unit’s global plans, save for Meituan’s ballooning losses that may spur a further rollback of its money-burning, non-core businesses.

While Meituan’s revenues from the fourth quarter almost doubled to 19.8 billion yuan ($2.94 billion), net loss widened to 3.4 billion yuan ($510 million) from 2.2 billion yuan a year ago. Investments in “new initiatives,” which include bike sharing and car-hailing, have “tempered” the firm’s rising profitability. Meanwhile, its core units of food delivery, in-store services like software for restaurant owners, and travel booking earned positive operating profits in 2018.

 

China’s authorities propose to keep minors out of live streaming

China is getting serious about the way live streaming videos affect tens of millions of youngsters, so much so a top authority has proposed to tighten restrictions on underage use.

According to a report from the China Youth Daily, the Communist Party-controlled All Youth Federation recently submitted a proposal during the once-a-year parliamentary session, urging the country to introduce rules for protecting minors online and considers banning those under the age of 18 from hosting live videos.

The suggestion came months after China’s official media slammed video apps for letting content featuring teen moms to run rampant. Kuaishou and ByteDance’s Huoshan, the two video services ensnarled, subsequently apologized and pulled what the paper called “vulgar” and “harmful” videos promoting teen pregnancies.

But authorities concede verbal warnings aren’t enough, for the stakes have grown high for young users and society. For one, the live video format may allow illegal content to more easily fall through the cracks. Young individuals are also more susceptible to scams and may be duped into rewarding streaming hosts big bucks by stealing from their parents.

Aside from blocking minors from being live hosts, the youth union also called for clearer rules around minors’ use of live streaming apps, which can feature everything from esports competitions and makeup tutorials to seductive dances and violent acts. It added that these platforms should allow parents to monitor children’s activity, and any in-app monetary transactions, such as virtual gifting, must require real-name checks. Apps should also get better at sterilizing content, suggested the youth federation.

Such official manifesto is not to be taken lightly as the government’s stance is key to a company’s commercial success in China. Tencent, for instance, lost a staggering $17.5 billion in market value after an op-ed in the Communist Party’s official paper People’s Daily compared its blockbuster game Honor of Kings to “poison” and “drug”.

The live streaming industry is already a frequent target of Beijing, which has stepped up oversight over the Chinese internet in recent years as new media forms emerge. To keep in the government’s good graces, live streaming leaders YY, Momo, Huya, Douyu, Kuaishou and their peers hire armies of content regulators working day and night to screen user-generated content.

The ban proposed by the youth authority is potentially a positive move to society at large in terms of keeping children and adolescents safe. On the other hand, it could be a blow to a flourishing industry.

As many as 425 million people or more than half of China’s internet population were live streaming users as of last June, according to a report from the country’s cybersecurity regulator. More important, these products are having a moment with young people. One in five of China’s internet users who are in senior high school is a “frequently user” of live streaming apps, according to a joint survey put out by the Communist Youth League and the internet agency under China’s Ministry of Information Industry. The ratios for those in junior high school and elementary school are 18.3 percent and 6.4 percent, respectively.

The proposed restriction in live streaming trails a similar curfew in video gaming. Troubled by the rising level of myopia among children and the potentially negative impact of mobile games, Chinese authorities recently announced plans to limit play time among underage users. In another telling move, regulators told teachers to quit assigning app-based homework to slash students’ screen time. This kind of scrutiny is not new, but authorities are demanding stricter identity checks that can involve facial recognition, making it harder for children to find loopholes in the system.