More Suitors Chase Video Site PPTV
Just 2 weeks after reporting that web portal Sohu (Nasdaq: SOHU) had broken off talks to buy PPTV, a sudden flurry of new reports have appeared saying several other companies are bidding for the online video company, including leading e-commerce firms Alibaba and Suning (Shenzhen: 002024). Rather than reflecting PPTV’s attractiveness, I suspect this sudden flurry of talks is being driven by a impatience among its shareholders who have pumped big money into the money-losing company but have received little returns so far. If that’s the case, I would expect to see PPTV acquired most likely by the end of this month, though perhaps at a far lower price than the investors were originally seeking.
Let’s take a look at the latest news, which has media citing numerous unnamed sources confirming that talks are ongoing between PPTV and various other parties. (Chinese article) The reports indicate that one or more of PPTV’s investors, the biggest of which is private equity firm Softbank, may be the driving force behind this latest bid to sell the company.
That wouldn’t surprise me too much, as these investors have pumped hundreds of millions of dollars into PPTV since the company’s founding 8 years ago, and are probably tiring of waiting for a return on some of their investment. Most or all of China’s online video sites are currently losing money, including industry leader Youku Tudou (NYSE: YOKU), which was formed last year through a merger of the industry’s top 2 players. More consolidation occurred last month when online search leader Baidu (Nasdaq: BIDU) combined its iQiyi video service with PPS, another top industry player.
Now PPTV looks like the next company set for consolidation, which was first rumored last month when word of the Sohu-PPTV talks emerged. The wealth of financial information on PPTV in these latest reports indicate the company is indeed up for sale, as such figures wouldn’t typically be so publicly available otherwise.
Those numbers indicate that PPTV generated about 800 million yuan ($130 million) in revenue last year, with 60-70 percent of that coming from advertisers. The company also claims to have stopped losing money at the end of last year, though it’s unclear on what basis it considered itself as breaking even.
The latest reports also include a detailed look at the companies that have pumped hundreds of millions of dollars into PPTV over the years. Chief among those is Softbank, which in 2011 plowed some $250 million into PPTV, valuing it at around $700 million at the peak of a wave of similar mega investments in Chinese Internet companies. Other big name investors in the company include Draper Fisher Jurvetson and BlueRun Ventures.
The big issue surrounding PPTV seems to be pricing. Almost everyone agrees that the company is now worth far less than the $700 million valuation that resulted from the Softbank investment in 2011. Some estimates are saying the company could be worth as little as $200 million, though I suspect the final valuation will come out somewhere in the $300-$500 million range.
Then there’s also the interesting fact that the 2 named bidders, Alibaba and Suning, are both from the e-commerce sector. The last time I checked, e-commerce and online video didn’t really share very much in common, which makes such a deal look a bit strange. But Alibaba has shown over the past 2 months that it wants to diversify into areas like location based services (LBS) and social media, with the company making major stake purchases in Sina’s (Nasdaq: SINA) Weibo microblogging service and online mapping firm AutoNavi (Nasdaq: AMAP).
I don’t really see the same kinds of synergies between online video and e-commerce, but perhaps others see something valuable if the latest media reports are true. If they are correct, which seems likely, we should expect to see a sale of PPTV most likely by the end of this month, continuing the ongoing consolidation of China’s crowded Internet space.
Bottom line: PPTV is likely to be acquired in the next month for $300-$500 million, as its stakeholders look to recoup some of their investment.
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