Qutoutiao stock soars after IPO: ‘This is a market no one is paying attention to’

The Chinese-IPO hot streak continued Friday, as shares of mobile-news company Qutoutiao Inc. soared 130% after debuting on the Nasdaq.

The company operates a platform that serves up news content to Chinese consumers based on their profiles and past actions on the service. It’s mainly focused on browsers in Tier 3 cities and below, which are the less affluent areas of China.

Chief Strategy Officer Oliver Chen said the stock price appreciation on the first day of trading showed that investors saw the potential of a fast-growing company that delivers news to consumers who may not be a major focus of more “elite” apps in China.

“This is a market no one is paying attention to,” he told MarketWatch. Lower-tier cities tend to have lower smartphone penetration rates, which is why consumers there weren’t always seen as particularly attractive to app companies, but Qutoutiao QTT, +128.14%  sees itself positioned in the sweet spot as the number of mobile-phone users grows.

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Chen said that the company has a competitive advantage because its aggregated content is more tailored toward what lower-tier consumers want to read. Whereas news apps aimed at Tier 1 and Tier 2 cities might focus on the trade war’s impact on currency devaluation, Qutoutiao emphasizes more “fun” content such as lists of household products that consumers should rush to buy before tariffs take effect, according to Chen. The company’s name means “fun headlines.”

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Qutoutiao monetizes its platform mainly through advertising. Overall revenue grew to $101.2 million in the first six months of the year, up from just $16.1 million in the first half of 2017. Losses swelled as well, reaching $78 million in the first half of 2018, up from $4.3 million a year earlier. It had 17.1 million daily active users, as of July, who spent an average of 55.6 minutes on the platform each day.

The company was founded in 2016, and Chen said the main purpose of the IPO was to build brand awareness. As the company grows larger, he explained, it will eventually have to expand into Tier 1 and Tier 2 markets, as well as perhaps into new countries. Chen thinks being public will help the company prove its credibility as it grows.

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The company raised about $84 million through its offering.

Qutoutiao received an investment from Tencent Holdings Ltd. 0700, +1.91%  back in March, and it expects “to cooperate with Tencent more closely in various areas” going forward. The company went public in the same week as Nio Inc. NIO, -14.66% known as China’s Tesla Inc. TSLA, +1.98% which has also seen its stock soar since IPO day.

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