21 October 2016
Jia Yueting plans to sell part of his stake in LeTV and then make the firm an interest-free loan of 2.5 billion yuan or more for at least 10 years. Photo: Bloomberg
Jia Yueting plans to sell part of his stake in LeTV and then make the firm an interest-free loan of 2.5 billion yuan or more for at least 10 years. Photo: Bloomberg

LeTV learns lesson of gravity as claims of exaggeration sprout

Online video superstar Leshi Internet Information & Technology (LeTV, 300104.CN) is quickly learning the lessons of gravity.

Its formerly surging shares have suddenly shifted into reverse amid claims of unusual accounting and a big share sale by chief executive Jia Yueting.

Anyone who has owned the stock over the last 52 weeks is still doing quite nicely, with the shares worth more than double their price a year ago.

But anyone who bought LeTV shares amid a wave of euphoria that began in April might be doing less well.

In that the share price more than doubled in just a month, making the company the undisputed leader in China’s online video space, well ahead of former leader Youku Tudou (YOKU.US).

But since reaching a peak in May, LeTV’s shares have lost about a third of their value, and it’s we could see quite a bit of downside ahead for this overinflated stock.

Anyone really serious about LeTV shouldn’t be too worried, as the company certainly seems to have a solid business model that has helped it challenge China’s traditional television operators by offering subscription video services over subsidized TVs and smartphones.

But like many Chinese firms, the company is now finding itself being accused of creative accounting by several observers.

The fact that its charismatic CEO recently announced a plan to sell a major portion of his stock isn’t helping either, implying he thinks the shares may be overinflated at current levels.

I’ll review some of the latest allegations shortly, but first I should start by saying this campaign against LeTV looks suspiciously coordinated, because of the sudden emergence of similar allegations from different sources.

Such smear campaigns are quite common in China, and Jia himself has engaged in a recent war of words with the equally charismatic Lei Jun, CEO of smartphone superstar Xiaomi Inc.

All that said, Chinese companies like LeTV are certainly prone to the kinds of creative accounting that it’s now being accused of, as they try to make their financial statements more attractive to investors.

One of the latest reports says LeTV has demanded an apology from a Shanghai-based analyst who questioned the accuracy of company claims about sales for its newly released smartphones.

That analyst had cast doubt on LeTV’s proclamation that it logged preorders for a massive 10 million of the new smartphones in the first 10 days after it began accepting orders.

The analyst later said on his microblog his comments only represented his personal opinion.

Another new report cites a university-based researcher questioning an unusual discrepancy between LeTV’s total profits and the profits attributable to ordinary shareholders on its 2014 financial statement.

That report says LeTV declared profits attributable to ordinary shareholders of 364 million yuan (US$56 million) for the year 2014.

But it also notes that the company’s actual net profit totaled a smaller 129 million yuan; the gap was due to a loss of 235 million yuan incurred by a small group of other shareholders.

The report cites the researcher saying this kind of big discrepancy between different profits is quite rare for publicly traded companies, and as a longtime financial reporter I can say that it’s relatively uncommon to see such a big gap.

In yet another piece of potentially related news, media are saying that Jia has signed an agreement to lend his company 2.5 billion yuan or more for at least 10 years, with no requirements for interest payments.

The reports say LeTV will use the money to replenish its working capital.

That’s certainly not a surprise, since LeTV has embarked on several major new forays recently, including moves into smartphones and new-energy vehicles.

It has also embarked on a fledgling overseas expansion.

LeTV recently declared it is aiming to become the second-largest provider of paid video services in Hong Kong.

So, what should investors make of all this?

The bottom line is LeTV and Jia are both quite aggressive, which means the company may be prone to exaggerating things like its sales figures.

But at the same time, LeTV does seem to have a good product and business model, even if some of its new ventures, like new-energy cars look a bit dubious to me.

I personally think the stock is probably a bit overvalued at current levels but that LeTV looks like a good bet to emerge as a leading contender in China’s video services space over the next three to five years and could even become a global contender.

Bottom line: LeTV’s shares are probably overvalued despite a recent sell-off, but the company still looks like a good long-term bet despite allegations that it may overstate some of its sales and financial data.

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A commentator on China company news and associate professor in the journalism department of Fudan University in Shanghai. Follow him on his blog at

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