Suppliers demand debts from senior executives as LeEco falls from heaven to earth

Today’s LeEco is no better off than before Jia Yueting disclosed his financial crisis in November 2016, although LeEco had introduced a strategic investment of 16.8 billion yuan in January this year.

In recent days, LeTV has been targeted by the 2016 financial report scandal again.

Because the performance data was significantly different from the previously released performance forecast data, LeTV's corporate integrity was seriously questioned.

Performance Express: LeTV's estimated operating profit for 2016 was 44.7914 million yuan, but after the audit, it turned into -337 million yuan, a change of -853.49%;

Performance Express: LeTV's total profit for 2016 was expected to be 40.1936 million yuan, but after the audit, it turned into a loss of 329 million yuan, a decrease of more than 9.17 times;

According to the performance report, LeTV's net profit in 2016 was expected to be 766 million yuan, which was confirmed to be 555 million yuan after the audit.

Subsequently, the auditing agency issued a "non-standard" opinion to LeTV, and LeTV issued an apology announcement.

In April, LeTV was hit with bad news one after another

Since 2017, LeEco has been hit by bad news one after another. Because there are too many, I will only mention a few of them:

On April 9, Tencent Technology reported that Yidao CEO Zhou Hang had resigned from Yidao a month ago and joined Shunwei Capital under Lei Jun as an investment partner.

Earlier on March 20, Ding Lei, the soul of LeTV Auto, co-founder of LeTV Auto, global vice chairman, and CEO of China and Asia Pacific, just announced his resignation.

Unlike Ding Lei's low-key resignation, Zhou Hang's resignation was accompanied by a fierce war of words with LeTV.

In fact, before Ding Lei, Joerg Sommer, vice president of products at Faraday Future, and Marco Mattiacci, global chief brand officer, both led by LeTV, had already resigned.

LeTV Sports was the hardest hit by the resignation of senior executives. LeTV Sports President Zhang Zhiyong, LeTV Sports Editor-in-Chief Ao Ming, LeTV Sports COO Yu Hang, Hong Kong company CEO Cheng Yizhong, LeTV Sports Vice President of Event Operations Qiu Zhiwei and other senior executives have all resigned within six months.

The automobile and sports sectors have become areas with the highest rate of executive resignations, and the media attribute this to two main reasons: 1. No money, 2. No confidence.

LeTV's performance in the first quarter of 2017 is still not optimistic. On April 10, LeTV released its first quarter performance forecast: the net profit attributable to shareholders of the listed company is expected to be 103.2654 million yuan to 131.9502 million yuan, a decrease of -10% to 15% compared with 114.7393 million yuan in the same period last year. Commentators believe that the first quarter performance shows that LeTV has entered a downward channel and lacks stamina.

On April 10, LeEco Holdings announced that Feng Xing would no longer serve as president of LeEco Mobile, and his work focus would shift to government affairs and operator affairs. The media interpreted this as a signal that Feng Xing was about to leave LeEco.

On April 11, Reuters reported that LeEco abandoned its $2 billion acquisition of American TV company Vizio due to "regulatory" reasons. Industry analysts believe that the so-called "regulatory" is actually an excuse for not having enough money to acquire. At the same time as LeEco acquired Vizio, Haier acquired American GEA for $5.6 billion, which was more than twice the amount of money LeEco used to acquire Vizio. Why did it not fail due to "regulatory"?

During this year's "414" e-commerce festival, LeTV's performance was not as good as before, with TV sales (386,000 units) only 70% of the same period last year (549,000 units), a drop of 30%.

On April 17, Zhou Hang, the founder of Yidao, started a war of words with LeEco. Zhou Hang said, "Yidao does have funding problems at present," and that "the most direct reason is LeEco's misappropriation of 1.3 billion yuan of Yidao's funds." LeEco Holdings then issued a statement, saying that LeEco had never misappropriated Yidao's funds and called Zhou Hang a "modern version of the farmer and the snake."

The bad news is that LeEco has only achieved sales of $15 million since entering the US market, far from the expected sales target of $100 million, so it decided to lay off 175 employees. Not long ago, LeEco India just announced a layoff of 85%.

In addition, 36 LeTV suppliers went to collect debts, but to no avail; Yidao drivers asked to withdraw money, but to no avail; LeTV cars (including Faraday Future FF91) were absent from the Shanghai International Auto Show, etc.

The latest news is: On April 22, the media reported that LeEco Holdings CFO Wu Hui resigned.

In summary, the main themes of LeTV in April were: a large number of senior executives leaving, failed cross-border acquisitions, a change of leadership in mobile, annual report scandals, overseas land sales and layoffs, and suppliers’ fruitless debt collection.

Let me ask: Why is bad news so fond of LeTV?

The fact that LeEco received a huge investment of 16.8 billion yuan in January 2017 did not change the fact that LeEco has been plagued by bad news. Why is that?

The answer may have to be found in LeTV’s roots.

According to statistics from China Business News, the entire LeEco, including LeTV.com, has completed (and is planning) financing of more than 80 billion yuan. From this perspective, LeEco should be the richest company in China.

One question that must be asked is: Why has LeTV, which has raised such a huge amount of funds, become the most cash-strapped company in China?

The answer that almost everyone can give is: LeTV’s financing speed will never catch up with the speed at which it burns money.

But this is not the ultimate answer.

We need to think further: Why is LeTV's financing speed not keeping up with the speed of burning money?

LeTV claims to have three major industries and seven sub-ecosystems, but none of the seven sub-ecosystems has formed substantial profitability, and each is a hungry child.

All the questions about LeTV ultimately point to the LeTV ecological model designed by Jia Yueting.

What exactly is the “LeEco ecosystem”?

In March 2015, Jia Yueting explained the LeEco ecosystem as follows: The essence of the LeEco ecosystem of "platform + content + terminal + application" that we have created is the vertical integration of the industrial chain. Vertical integration is more in line with the needs of users in the Internet era and the trend of economic development, and represents advanced productivity. Its significance lies in: first, it can truly create products and services that provide users with the ultimate experience and create the greatest value for users; second, it can break the boundaries of innovation and cross the innovation gap; third, it can promote the synergy of various links and trigger chemical reactions; fourth, it can open up and unite partners in various links of the industrial chain to jointly create greater social and economic value.

Jia Yueting said that it would take 15 years for ordinary people to understand the LeEco model. This is confirmed by the fact that TCL Group Chairman Li Dong said not long ago that he "could not understand the LeEco model".

The key point of Jia Yueting's explanation above is "platform + content + terminal + application". LeTV has built seven sub-ecosystems for this purpose, including the Internet, content, large screen, mobile phones, automobiles, sports, and Internet finance.

If you think this explanation is equivalent to saying nothing, let me be frank: what Jia Yueting means is that LeTV does everything and does whatever is trendy.

In the past, this was called strategic lack of focus and unclear core competitiveness. But since when, strategic lack of focus has been packaged into a fashionable concept by Internet companies - "ecology", which has suddenly become a hot commodity sought after by the capital market.

Ideals are full of hope, but reality is very bleak. Four years later, people increasingly feel that "ecology" is more like a fantasy created by humans. Otherwise, we cannot explain why Xiaomi and LeTV have suffered setbacks since 2016.

There is only one final answer: LeTV’s top-level design was wrong.

If you look closely, you will find that the LeEco empire is built on two major fantasies.

If you observe carefully, you will find that LeEco's empire is built on two major imaginations: one is the ecological imagination, and the other is the financing imagination. The two imaginations form a mutually supportive relationship, and they prosper together and suffer together.

Let’s talk about “ecological imagination” first.

The LeTV myth started with “ecological imagination”.

In LeEco's context, "ecology" is actually what we often call "related diversification", also known as "industry connection". But Internet companies don't express it this way. They are familiar with the psychology of young people and the capital market. If it is too easy to understand, it will appear low-class. "Ecology" is both fashionable and technological.

To be fair, "ecology" is a good concept. The problem is that Internet companies have raised it too high, resulting in serious alienation. Just like forests are big and small, ecosystems are also big and small. However, the "ecology" mentioned by Internet companies is borderless, which is a problem.

Apple also builds an ecosystem. But you will find that Apple's ecosystem has boundaries, while LeEco's ecosystem has no boundaries.

For example, extending from LeTV.com to LeTV TV is an ecosystem; but extending from LeTV.com to LeTV Auto and LeTV Finance becomes a "pseudo-ecology" and irrational diversification.

By the way: In recent years, some people have put forward the idea of ​​"borderless enterprises". I think this is a very dangerous tendency. Enterprises are not omnipotent and cannot replace society.

It is not particularly difficult to succeed in building a bounded and limited ecosystem, as Apple is an example. However, it is much more difficult and takes a long time to build a borderless ecosystem, as Samsung is an example.

There is currently no precedent in the world for creating a successful borderless ecological enterprise in a very short period of time. China's "Great Leap Forward" is a tragic example in this regard.

If you observe carefully, you will find that although Jia Yueting highly advocates the ecological theory, he has not yet made a rigorous and thorough argument for the borderless "ecology". Therefore, the "LeEco ecosystem" is largely the result of Jia Yueting's imagination or assumption.

But this imagination is too important for Jia Yueting and LeTV. It constitutes the cornerstone of the LeTV myth. As long as many people believe in this imagination, the story of LeTV can be told day by day.

However, the tomorrow that Jia Yueting describes is always so beautiful, but the present is always so bad, so people began to think: Does the "ecological" theory look beautiful? Once people wake up, it will shake the theoretical foundation of LeTV's existence, which is what Jia Yueting fears the most.

For LeTV's die-hard fans, they have become accustomed to refusing to think, and LeTV needs such brainless people the most.

I once said that the popularity of "ecological imagination" in China is a great harm to Chinese society, because it makes people mistakenly believe that smart people don't need to do anything practical and can make a fortune just by making a beautiful PPT.

I have always believed that the group that supports Jia Yueting may not understand the true meaning of ecology. Their support for Jia Yueting is largely due to their rebellious mentality towards society.

After talking about "ecological imagination", let's talk about "financing imagination".

Jia Yueting once said something very confident: "As long as the strategy is forward-looking and leading enough, the product is disruptive enough, and has enough user value, as long as your organizational ability is strong enough, as long as you can get things done, the funds will naturally follow."

Jia's words "As long as the strategy is forward-looking enough, money will follow" refer to the imagination of "LeEco ecosystem". Obviously, LeEco's "financing imagination" and "ecological imagination" are complementary to each other.

The so-called "financing imagination" is to imagine that financing is very easy, and the premise is to tell stories.

It has to be admitted that Jia Yueting is very successful in this regard, so much so that he was able to raise more than 80 billion yuan just by telling an ecological story.

The ease of raising funds further strengthened Jia Yueting's narcissism, and even gave him the illusion that "as long as the strategy is forward-looking enough, money is not a problem." To use an analogy, he firmly believed that "as long as my apple seedling is of good quality, I can plant the tree today and pick the fruit tomorrow."

Therefore, Jia Yueting believed for a long time that "money is not a problem" based on his fascination with his own "ecological imagination".

Since money is not a problem, of course the business will get bigger and bigger, and they will spend money without any regrets, daring to do everything they can and shouldn't do, such as the passionate acquisition of the American TV brand Vizio, the determined entry into the automotive field, and so on.

These two fantasies have a common carrier - LeTV.com. LeTV must make LeTV.com's performance beautiful no matter what, which is why Jia Yueting let slip on January 15 that "everyone should work together to quickly raise LeTV's stock price to 100 yuan", and why there is a huge gap between LeTV.com's 2016 financial report and performance forecast.

It’s time to think about whether LeEco can survive 2017 safely

What makes Jia Yueting and Sun Hongbin helpless is that no matter what they try, LeTV's stock price still continues to decline.

The stock price fell instead of rising after the 16.8 billion yuan war chest was invested, which shows how difficult it is to rebuild investor confidence once it is lost.

Obviously, investors have realized that the boundless ecosystem is just an imagination.

Yes, who would listen to stories all their life and have confidence all their life?

But Jia Yueting did not realize it.

Super confident people have one thing in common: once they get into a state they set, it is very difficult to get out of it. The cruel reality still failed to wake Jia Yueting up. After raising 80 billion yuan, he still said that "LeTV's financing ability is not strong." More importantly, Jia Yueting said that "LeTV's strategy will never change," which is equivalent to pushing himself into a desperate situation.

Some people regard Jia Yueting's internal letter in November 2016 as active reflection, but I tend to think that it was just a helpless choice when he could no longer cover up. If Jia Yueting had known that there would be such a result, he would never have published the letter.

The statement in a report by China Securities Network is very interesting. I would like to share an excerpt:

Jia Yueting's continuous expansion of the extracorporeal business has brought huge room for imagination to the valuation of LeTV.com, and its price-earnings ratio once exceeded 400 times. It is the extremely high valuation level of LeTV.com that gives Jia Yueting and others enough space to pledge or reduce their holdings and use the funds for the extracorporeal ecology, which in turn increases the valuation space of the listed company. LeTV.com is almost the core cornerstone of LeTV's financing system. With LeTV.com, it has the financing ability as a listed company, the funds of Jia Yueting and others can be flexibly transferred, and the non-listed company business has a higher financing possibility. Today, except for LeTV.com, LeTV Zhixin, and LeTV Pictures, all other businesses are silent. For a long time, the only businesses that may be related to the listed company are LeTV Pictures and LeTV Zhixin. Can these businesses support the current price-earnings ratio of 80 times? "LeTV, LeEco Zhixin and LeTV Pictures are all mature businesses. They can all find suitable corresponding targets in the market and it is not difficult to estimate them separately." Some analysts believe that LeTV can be regarded as a "first-tier video website + small and medium-sized TV manufacturer + medium-sized film and television production company" for the capital market. Investors only need to look at the valuations of industry leaders such as Tudou Youku, TCL Group and Huayi Brothers to make a judgment on the space for LeTV.

Jia Yueting is actually a dreamer rather than an entrepreneur, because entrepreneurs are not only rational, but also have a high sense of risk. He must first ensure the survival of the company and will not easily say angry words like "either great or dead".

LeEco is currently in a very awkward situation. It is no longer possible to continue with its previous “super low price” and “free” model, which is the basis for LeEco’s rapid growth. Today’s LeEco is no different from the so-called traditional enterprises it claims to “disrupt”, except that it is bigger and lacks money.

The collapse of public confidence is still deepening, which means that the end of LeEco’s crisis is nowhere in sight.

What to do? The only way to save LeEco is to face reality, shrink its business, and abandon all businesses except LeEco.com, LeTV TV, and LeTV Pictures, first ensuring its survival and then planning for the future.

Especially the automotive sector, which must be cut without hesitation, no matter how reluctant Jia Yueting is. LeEco has no chance of doing well in the automotive industry, whether in terms of financial strength or technical reserves. The release of a cool concept car will not bring LeEco a bright future.

As I write this, I suddenly remember a line from Kong Shangren's "Peach Blossom Fan": "I saw him build a tall building, I saw him entertain guests, and I saw his building collapse."

2017 may be a life-or-death crisis for LeTV.

As a winner of Toutiao's Qingyun Plan and Baijiahao's Bai+ Plan, the 2019 Baidu Digital Author of the Year, the Baijiahao's Most Popular Author in the Technology Field, the 2019 Sogou Technology and Culture Author, and the 2021 Baijiahao Quarterly Influential Creator, he has won many awards, including the 2013 Sohu Best Industry Media Person, the 2015 China New Media Entrepreneurship Competition Beijing Third Place, the 2015 Guangmang Experience Award, the 2015 China New Media Entrepreneurship Competition Finals Third Place, and the 2018 Baidu Dynamic Annual Powerful Celebrity.