China’s sprawling LeEco still awes investors despite company’s growing list of setbacks
Chinese entrepreneur Jia Yueting is defying gravity. A stalled $ 2 billion deal would add to a growing list of setbacks at LeEco, his empire that sprawls from video- streaming to smartphones and electric cars. But shares of Jia’s flagship listed unit still trade at a huge premium to established giants like Alibaba and Tencent. The gulf between hype and reality is widening.
Stricter controls on capital outflows have stalled LeEco’s purchase of US television- maker Vizio, Caixin magazine reported earlier. LeEco will only say the deal, announced in July, is still pending regulatory approval. If this deal fails, that would be Jia’s highest- profile setback. In November he admitted LeEco had expanded too fast and faced a cash shortage. Since then some key executives have reportedly departed. And a LeEco subsidiary lost the rights to broadcast some Asian soccer matches after missing a payment.
Jia is trying to steer back on course. LeEco slashed its workforce in India by almost 80 percent, and is trying to sell a Silicon Valley property soon after buying it from Yahoo, Reuters reported in March. The company just secured $ 2.2 billion from a local developer for its Internet TV and movie- production units.
Most of the LeEco empire is privately held, except Shenzhen- listed Leshi Inter- net, a $ 9.5 billion, Netflix- like business. Shareholders who bought into Leshi a year ago would be sitting on a negative return of over 40 percent. Contrast that with an old- school manufacturer like China’s biggest traditional carmaker, SAIC Motor, which has returned 36 percent to shareholders.
Yet investors still back Jia to succeed. Leshi shares now trade at a generous 49 times forward earnings – one and a half times Tencent’s multiple. To be sure, analysts polled by Thomson Reuters expect earnings per share to double from 2016 to 2018. But this is a highly competitive sector – and Jia has a lot of other fires to put out.
It surely helps that Leshi trades on the ChiNext, a frothy tech- heavy board full of Chinese retail investors pumping up “concept stocks.” The market trades at a whopping 66 times earnings. While Jia’s global ambitions have taken a knock, he still has some starry- eyed backers.