Baidu’s Video Buy-Out: Xunlei Tie-Up Ahead? 百度收购私募所持爱奇艺股份 为战略入股迅雷前奏？
Fresh on the release of disappointing quarterly results, online search giant Baidu (Nasdaq: BIDU) is providing yet another news bit that looks like a disappointment on the surface but could be paving the way for an interesting new tie-up in the fast-growing online video space. Company watchers will know I’m talking about Baidu’s latest aborted partnership outside its core search business, with word that the company is buying out Providence Equity Partners from their online video partnership called iQiyi (company announcement; Chinese article).
No terms of the deal were given, but Baidu said that after the buy-out it will hold a substantial majority share of iQiyi. This deal seems to mark the latest in a series of set-backs for Baidu, which last week reported disappointing results that reflected slowing growth for its core online search business. (previous post) Baidu shares tumbled 6 percent the day after the results came out, as a growing chorus of people wondered if the company’s days of heady growth are in the past.
Baidu has been trying hard to find other businesses to diversify beyond search and bring some excitement back to its name, but nearly all of those efforts have ended in failure. The latest of those came in April, when Baidu formally abandoned an e-commerce partnership with Japanese online retailing giant Rakuten (Tokyo: 4755) less than 2 years after the venture’s high-profile launch. (previous post)
While Baidu has been relatively quiet on e-commerce and other hot areas like social networking after suffering setbacks in those areas, it seems to be much more determined to become a player in online video. The company was rumored to be in talks to buy some or all of major video sharing site Tudou last summer (previous post), even though Tudou ultimately ended up making a disastrous IPO in New York and was later acquired by leading online video site Youku (NYSE: YOKU).
Baidu has also poured big resources into iQiyi itself, and a year ago announced the first of a string of deals to license popular video content from major Hollywood studios as it tries to build the site into a fee-based provider of premium video content. But perhaps most intriguing were reports a couple of weeks ago that Xunlei, a more established video site that may be preparing to make an IPO, might be in talks with Baidu about a strategic equity tie-up. (previous post) Xunlei, which already counts Baidu as one of its early minority investors, said there were no plans to find new investors before the company’s planned IPO. But his remarks left open the possibility that Baidu or another investor could buy a strategic stake at the same time as Xunlei’s IPO, which could come as early as the end of this year.
So, how can an observer connect all these various dots to figure out what’s really happening here? Obviously someone like myself can only make an educated guess, since I don’t have special access to information on what’s happening inside Baidu. But based on all the signs, it does seem like we could see Xunlei file for its New York IPO in the next 2-3 weeks, and either simultaneously or shortly afterword announce a strategic investment by Baidu. I doubt Baidu will be able to buy Xunlei outright, mostly because Xunlei seems determined to make its IPO and remain independent for now. But if such a stake sale happens, look for Baidu to buy perhaps up to 30 percent of Xunlei’s shares, which would provide Xunlei with some positive news to pique investor interest as it attempts an IPO in the current skeptical climate.
Bottom line: Baidu’s buy-out of the partner in its iQiyi online video venture could be the prelude to its purchase of a strategic stake in rival Xunlei, as it boosts its effort in the video business.
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