Baidu, operator of China’s dominant search engine, has reportedly put up for sale its entire stake in iQiyi, the country’s second largest conventional video streaming platform. IQiyi has close to 100 million subscribers, nearly all in mainland China.

The sale plan was revealed as an exclusive report by the Reuters news agency. It said that Baidu has set a target price of $7 billion for the company. Baidu currently owns 53% of iQiyi’s equity and controls more than 90% of the voting rights at the firm. Both Baidu and IQiyi shares are traded in ADR form on the U.S.’s NASDAQ exchange.

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IQiyi said, “This is purely market rumor,” in a statement emailed to Variety.

Founded in 2009, IQiyi was one of the first companies in China to replace DVD stores and internet cafes where Chinese consumers got many of the films at the beginning of the century and to successfully provide an easy means for subscribers to make monthly recurring payments without a credit card. It also offers ad-supported tiers, games and other services.

Helped in its early years by integration with Baidu’s search capacity, iQiyi withstood competition from Tencent Video and Alibaba’s Youku (formerly Youku Tudou) and was at one stage China’s leading online video player.

Nevertheless, iQiyi has given investors a bumpy ride. In 2016, when iQiyi was still privately owned, the company’s founder Gong Yu and Baidu boss Robin Li were criticized for trying take it private too cheaply. The valuation then was $2.8 billion. Two years later, it was valued at $13 billion from an IPO in which the ADRs were sold at $18 apiece.

Since floatation, iQiyi has repeatedly tapped the market for additional funding, while failing to achieve steady profitability. Worse, the COVID-19 crisis helped Tencent overtake iQiyi in conventional subscriber terms and gummed up iQiyi’s content supply pipelines, causing a portion of its customers to flee. The company took an ax to staff and has slowed its push into international markets.

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In response, iQiyi’s shares crashed from a $27.77 peak in 2021 to as low as $1.86 last year.

With the shares at $4.67 at Tuesday’s close, the company is valued at $3.74. Reuters calculates that the $7 billion price that Baidu is seeking equates to a per share valuation of $8.13.

China’s conventional streaming market is ripe for consolidation. But it is not clear how that will pass official muster. Neither Tencent Video nor Youku is consistently profitable, their earlier attempt to buy iQiyi was reportedly rebuffed by Baidu. Now, Chinese regulators have turned frosty towards the tech giants and may not permit them to swallow up competition by making heavyweight acquisitions.

Meanwhile, short form streaming platforms such as Tiktok (known as Douyin in China) and Kuaishou, entertainment specialist Bilibili, and live streaming and games firms, such as Douyu and Huya, are successfully competing with the mainstream streamers for consumer eyeballs.

Reuters reported the China Telecon-backed streamer Migu TV as being among the likely bidders. It also named Hong Kong-based private equity firm PAG as a potential buyer.

 

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