Analyst questions company's profitability, operational management
Shares of Chinese online video provider Leshi Internet Information and Technology Corp, known as Letv, gained Wednesday, despite release of an analyst report questioning the company's profitability.
The Shenzhen-listed company saw a 3.4 percent rise in its share price, which closed at 56.2 yuan ($9.05) on Wednesday.
Liu Shuwei, a professor specializing in Chinese enterprises at the Central University of Finance and Economics (CUFE), released a report via a Weibo post on Tuesday night, expressing her doubts not only about the company's management but also its profitability.
Letv reported higher revenue but lower profit in 2014, compared to its financial results for 2013, she said. "In addition, the company has been focusing too much on television and terminal devices, even though its Tianjin-based TV subsidiary recorded a drop in revenue in 2014."
In 2014, TV production accounted for 70 percent of Letv's core business, seen as a strategy to expand customer base and market share, according to the company's financial report issued in March.
Liu doubted if the company could continuously make profits by selling TVs.
In response, Letv said in a press release sent to the Global Times Wednesday that it appreciated Liu's report and welcomed her to visit the company to have a better understanding of Letv's "unique ecosystem."
Letv revealed in its annual financial report for 2014 that it was considering the idea of building a business ecosystem, which includes platforms, content, terminals and applications. The company is engaged in various businesses such as Internet TV, video production and distribution, and smart devices such as smartphones.
It is not the first time Letv has been questioned by Liu.
On June 17, Liu said in a Weibo post that Letv CEO Jia Yueting's recent share sale may raise concerns that the company is not in sound health.
Jia, who sold 35 million shares for 2.5 billion yuan between June 1 and June 3, later explained that the money was lent to the company as interest-free loan to support its development.
Yang Xiaolei, an analyst at Shanghai-based Hua An Fund Management Co, said on a TV show on Friday that Letv might have exaggerated its sales figures of smartphones and smart TVs.
However, some analysts still hold a positive view of Letv.
At an initial stage of development, Internet companies are likely to expand their customer base, and Letv's significant investment in terminal production is intended to attract more users, Yan Han, an analyst from Beijing-based Guotai Jun'an Securities, told the Global Times on Wednesday.
By the end of 2014, the website of Letv had about 47 million average daily unique visitors and daily page views reached 240 million.
Yan noted that in order to evaluate the company's profitability, investors should also look into its cash flow.
Letv's cash flow shrunk by over 130 percent in 2014 compared to the previous year due to the company's business expansion, said the financial report.
Liu Dingding, an analyst from Beijing-based Internet intelligence agency Sootoo, also differed with Liu Shuwei.
"It's normal that Internet companies don't make money at an early stage," analyst Liu told the Global Times Wednesday.
Internet companies generally accumulate as many users as possible with their low-cost products, making money later by selling content or other services to their huge user base, he said.
Letv provides its TV set-top box for free but charges 490 yuan for a 12-month subscription of online content, which has sparked new collaborations between TV manufacturers and content providers seeking to bundle services with hardware offerings, according to a market research report issued by New York-based consultancy McKinsey & Company in January.
China's smart TV maker Xiaomi Inc - LeTV's major rival - is also actively expanding its presence in the online contents sector. On June 10, Xiaomi created an online video alliance with over 100 domestic video sites including Baidu Inc's iQiyi and Youku Tudou on June 10, which is expected to help Xiaomi become more competitive than Letv's ecosystem, Xinhua reported on June 11.
