May 4, 2021
The Financial Times reported on July 8 that Chinese podcasting platform Ximalaya, Inc., which filed to go public in the United States on April 9, has scuttled its IPO. The FT quotes an unnamed source familiar with the company saying, "After communication with the relevant regulators, Ximalaya understands that a Hong Kong listing would be regarded as a preferred outcome."
Ximalaya joins a growing group of Chinese tech firms that have decided in the face of regulatory pressure from Beijing either not to IPO in the United States, or not to IPO at all. Ride-hailing giant DiDi went ahead with a U.S. IPO despite reported warnings from China's cyberspace regulator, and has since seen its stock fall after Beijing levied significant post-IPO penalties on the company.
Because Ximalaya's preliminary prospectus is still available on the SEC's website, and it provides a wealth of information, the below article, based on that prospectus, still provides a valuable resource for those seeking to understand this important company. — Ed.
Backed by Tencent, Ximalaya is riding a boom of what Chinese tech insiders call the "Ear Economy" (耳朵经济). The popularity of podcasts and audiobooks in China has been growing, with demand for such content particularly high during the pandemic.
China is the world's largest online audio market by sheer number of online audio users. But China's online audio monthly active users only counted for 16.1% of the country's total mobile internet users in 2020, a penetration rate far below that of the U.S. figure — 47% — over the same period, according to China Insights Consultancy. This means China's audio content sector, which Ximalaya leads, offers tremendous growth potential.
What does Ximalaya do?
Founded in 2012, Ximalaya has built an audio-based platform and community, Ximalaya FM, with 250 million average monthly users, 146 million of whom tuned in to the company's audio content through internet-of-things (IoT) devices and other third-party platforms.
Throughout 2020, users on Ximalaya spent a total of 26 billion hours listening to its audio offerings, including podcasts, audiobooks, audio drama shows, livestreaming, education programs and audio comics. That made up 75% of total mobile listening time across all audio-based platforms in China, according to China Insights Consultancy.
Apart from being the most popular audio platform among listeners, Ximalaya is also the most preferred independent online audio platform in China among professional and amature audio content creators. In 2020, 5.2 million content producers shared their work, paid or free, on Ximalaya.
According to Reuters, Ximalaya's valuation reached $3.71 billion in 2018.
The company's revenue growth has been robust since 2018. According to its preliminary prospectus, Ximalaya booked $176.3 million in revenue in the first quarter in 2021, a 65.2% surge from the same period in 2020. In 2020, the company's annual revenue was $620.7 million, up 51.3% from its 2020 figures.
Ximalaya's main streams of revenue comprise subscription, advertising and livestreaming, which monetizes via sales of virtual gifts to users. In 2020, 43.3% of its total revenue came from membership subscriptions and paid services. Advertising and livestreaming made up 26.5% and 17.7% of its annual revenue, respectively.
But like many startups in the audio content market, Ximalaya is facing pressure to turn a profit — the company has consistently lost money since 2018. In the first quarter of 2021, Ximalaya's net loss reached $40.8 million, a slight dip from the $43.7 million net loss it booked in the same period last year. The company's total net loss in 2020 was $92.7 million, 21.8% less than its 2019 total loss.
What's next for Ximalaya
Ximalaya intends to use the funds raised in the IPO for R&D, content expansion, marketing and investments and acquisitions.
In its prospectus, Ximalaya says it plans to devote 30% of the offering proceeds to developing and advancing new technologies and its AI and big data capabilities. These technologies are critical in gaining insights into user preferences and needs, and they are also important for achieving effective censorship of audio content.
Ximalaya says it intends to use another 25% of its proceeds to expand and enhance its content offerings, as well as "empowering" content producers, although the company doesn't clarify what empowering means in this context. Another 25% of the proceeds will be spent on marketing and branding, and the rest for "strategic investments and acquisitions."
Ximalaya believes that the rising trend of IoT and in-car listening will bring growth for the industry, and says it will continue to upgrade its platform to allow users to access content through IoT devices like smart speakers, smart watches and cars.
What could go wrong?
Ximalaya faces a challenge shared by many other user-driven content platforms in China: content monetization. If the platform can't grow its user base or convert non-paying users into paying users, its bottom line will continue to be red. The company has warned investors in the prospectus that it will probably continue to incur losses in the future.
Similarly, if Ximalaya can't continue to attract and retain content producers, the company could lose listeners, which would negatively affect its business.
As a content platform, Ximalaya might find itself in intellectual property disputes. Over the years, the platform has published content uploaded by individual users who didn't own the copyrights. Ximalaya has been sued for third-party copyright violations before. If the company can't source required intellectual property rights from third-party IP partners, or if content creators upload content without obtaining necessary copyright licenses, Ximalaya could be in trouble.
Ximalaya has also acknowledged its content-monitoring system might not be effective in preventing illegal, fraudulent or inappropriate content. The company could be liable for its content or even face the suspension of its business licenses for violations of Chinese laws and regulations.
Censorship in China and elsewhere Ximalaya operates could also expose the company to risks. Ximalaya was among 11 Chinese tech companies summoned by China's cyberspace regulator in March. The Cyberspace Administration of China claimed the companies were audio-based social networking apps and apps that involve "deepfake" technologies that had failed to perform required security assessment procedures.
Who gets rich?
- Yu Jianjun: Ximalaya's co-founder and CEO is the biggest shareholder of the company. He owns 17.2% of the audio giant.
- Chen Yuxin: Ximalaya's other co-founder Chen Yuxin is the second-largest shareholder. She holds 13.5% of Ximalaya's equity through an entity called Touch Sound Limited.
- Xiong Mingwang: Ximalaya's director and founding partner of Xingwang Investment. Xiong Mingwang owns 10.7% of the company.
- Other major shareholders include the VC firm Trustbridge (7.5%) and Image Frame, a subsidiary of Tencent (5.4%).
What people are saying
"As Chinese tech companies, including Baidu, Xiaomi, Huawei and Oppo have all flocked to make cars, over 60 carmakers have embedded Ximalaya's in-car devices. Ximalaya will see lucrative returns on its increasing investments in hardware devices like in-cars devices, smart home gadgets, smart speakers and smart wearables." —Tech blogger Huang Qingchun."The audio industry is waiting for an opportunity. If Ximalaya FM can successfully go public, the value of the whole industry may be re-evaluated." —WeChat account What's New on the Internet