LeEco's second largest shareholder: The turning point lies in Mr. Jia's one thought

1-minute speed reading tips

1. “LeEco’s ecological strategy is correct, but we have different views on the order of the strategy”

2. "For LeEco, three risks are now erupting at the same time. At this time, we need to consider whether we have enough cotton clothes, food and grass, and whether we have the ability to guard against cold guns."

3. "For Mr. Jia Yueting, there must be a balance between being great and keeping a low profile."

4. "I think LeEco needs a deeper transformation, such as the transformation of the board of directors"

5. "Compared with Xiaomi, his (Jia Yueting) strategy is more advanced. Compared with Baidu , he is also very capable. In my opinion, Mr. Jia is a very successful person."

6. "If it's a funding issue, we can always come up with 5-10 billion to support him."

7. "We are also working on a plan that may properly resolve the two issues, but I will not disclose it here."

8. "China is so big that it cannot accommodate a subversive heart"

"Isobath" reporter Qu Lili

On December 6, following the news of LeTV Sports layoffs, LeTV’s stock price plummeted by nearly 8% on the same day.

On December 7, LeTV suspended trading to disclose important matters. On the evening of the 7th, LeTV issued an announcement that the company is investigating rumors of abnormal declines and liquidation, and is also planning important matters, which are expected to involve industrial resource integration, and will continue to be suspended.

From LeEco Auto, LeEco Mobile, Yidao, and LeEco Sports, the capital chain problems of the non-listed companies in the LeEco ecosystem have been transmitted to the share price of LeEco. If calculated based on the highest price of the stock before the resumption of trading (60.98 yuan/share), the market value of LeEco has shrunk by far more than 1/3 (35.8 yuan/share before suspension).

This cannot help but cause confusion. The LeEco ecosystem created by Jia Yueting originally hoped that the ecological feedback between various sectors would realize the value deferral between circles, and even hoped that the non-listed companies would feed back to the listed companies. Why are the non-listed companies now repeatedly dragging down the listed companies?

For LeTV, is the more fatal problem at the moment the capital chain problem or other problems?

Regarding the above issues, our reporter interviewed Zeng Qiang, the second largest shareholder of LeTV and founding partner of Xingen Capital.

It should be noted that the fund under Xingen Capital is the second largest shareholder of LeTV, holding 5.55% of the listed company's shares, with a market value of approximately 2.7 billion yuan. At the same time, Xingen Capital has also fully participated in the financing of LeTV's multiple business fronts, and with the unique ecological investment concept of 1+N+B+G, the scale of cooperation with LeTV's ecosystem has exceeded 10 billion yuan.

Just a month ago, LeTV and Xingen Capital's LeTV Xingen Phase I Fund had successfully raised 4.8 billion yuan, and immediately launched the second phase of 5.2 billion yuan, and began to initiate a number of intensive investments focused on the upgrade of LeTV.

Is LeTV's strategy right or wrong?

"Isobath": We know that LeEco's ecosystem was originally positioned as an ecosystem of deferred value. However, judging from the problems that have arisen with LeEco phones, LeEco cars, Yidao, and LeEco Sports, the business of non-listed companies has greatly affected the stock prices of listed companies. What do you think about this issue?

We know that Xingen Capital is not only the second largest shareholder of LeTV, but also cooperates with LeTV's ecosystem with a scale of over 10 billion yuan based on its unique ecological investment concept of 1+N+B+G. Can you talk about how you evaluated LeTV's ecosystem when you first invested in LeTV?

Zeng Qiang: It should be said that LeEco's past achievements are due to the LeEco ecosystem. Its strategic layout is very large and has very strong subversive and innovative features. Moreover, the team's execution and creativity are first-class in China and even in the world, and we highly recognize this.

However, in LeTV's ecological layout, there are still some issues that need to be clearly defined, namely, which sectors have sales but no profits, which ones have no sales and need to be turned into sales, which ones need to establish user groups, and which ones need to be technologically forward-looking, and there needs to be an order of arrangement.

In my opinion, LeEco's ecological strategy is correct, but we have different views on the order of the strategy, or we have our own views from an investment perspective. For example, with regard to LeEco Sports' layout, it should be said that it is already a leading company in China, and it has done very well in sports content, sports copyrights, sports brands, etc. However, LeEco Sports should have greater power in terms of cash flow, competition barriers, value-added services, and membership fees. In other words, there should be an order between continuous expansion and deepening, and between breadth and depth. It should be one step first, then one step deeper, then the second step, one step deeper, then the third step, and then one step deeper, rather than doing all three steps at once. This aspect needs to be discussed.

LeEco's sales volume has grown from zero to 20 million units. Whether in terms of sales volume or the speed of achieving this sales volume, it is disruptive in the Chinese market. Moreover, it is admirable that it can use Huawei's personnel. However, in terms of terminals, how to differentiate the low-end and high-end between LeEco's and Coolpad's ecosystems, and how the core teams can interact with each other still need to be considered. It should be said that the realization of mobile phones and TVs is different. Mobile phones are replaced once a year, and TVs are replaced once every three years. Whether the success of TVs can be transplanted to mobile phones is currently being watched by the whole world. If the success of simple TVs is copied to mobile phones, there are certain risks.

In addition, in terms of financing, LeEco previously mainly used convertible bonds for debts, which will inevitably usher in a peak period of debt repayment. From Jia's point of view, if a part of the equity is diluted, it will lose a certain degree of control, but the financial pressure will not be great. Therefore, in the future, LeEco needs to have a sense of balance between equity financing and debt financing, a sense of balance between physical expansion breadth and depth, and a sense of balance between market share and profitability/profit margin.

In my opinion, everything LeEco did strategically was correct, but its grasp of the degree was problematic.

"Isobath": Generally speaking, to grasp the degree of the above three issues, does it require, in a certain sense, very strong comprehensive analysis and management capabilities of the industry?

Zeng Qiang: Yes, in addition to comprehensive industry research and management capabilities, it also includes organizational capabilities. For example, assessment is not a simple single goal. Different maturity levels have different assessment indicators. LeTV TV has already generated revenue, so the assessment indicator should be profit and profitability; LeTV Cloud has grown to a large scale, so the assessment indicator should also turn to profitability. Yidao used to focus on user base, but now the assessment indicator should be revenue and profitability. LeTV Mobile originally grew from zero to tens of millions, and the assessment for the past period of time was the number of users, but the next stage should be profitability.

Therefore, at different stages and in different sectors, the assessment indicators should be different, including revenue and profit, income, user base, competition threshold, and a pure intermediate state, etc. We need to distinguish these five different types.

"Isobath": We should know that enterprises are not in a vacuum. There is also the issue of competitive environment. If LeEco seeks internally, will it still put itself at a disadvantage in the external competitive environment? For example, will other enterprises have a good opportunity to grab market share at a low price?

Zeng Qiang: It's like you have a mountain of gold in front of you and a great dream, but you have to know that there are three risks on the way to the gold mountain. The first is the risk of cold winter, the second is the risk of ammunition, and the third is the risk of sniper guns. For LeTV, the three risks have now erupted at the same time. At this time, you have to consider whether you have enough cotton clothes, whether you have enough food and grass, and whether you have the ability to guard against sniper guns. There are many such cases in history. Napoleon died in the cold winter in Stalingrad. It was also the severe winter when Genghis Khan attacked Europe. European countries cut off the limbs of Genghis Khan's messengers in order to provoke him to send troops in the cold winter. Fortunately, his confidante Hulan stopped his impulse. After enduring for half a year, Genghis Khan finally conquered Europe.

Therefore, we must calm down and stay very calm. Whether we can stop our inner ambitions and control ourselves often determines the final victory or defeat. For Mr. Jia Yueting (original words, reporter's note), we must find a balance between greatness and keeping a low profile. The strategic direction is right, but we must also find a balance in the process of taking one step at a time today.

A deeper transformation is needed

"Deep Line": Did Mr. Jia accept your suggestion? LeEco is also undergoing internal organizational changes. Do you think they are on the right track?

Zeng Qiang: Actually, we are now forcing him to manage. I think it is already quite fast and the method is right. But I think LeTV still needs more profound transformation, such as the transformation of the board of directors. Do the core personnel of the major sectors have greater say? Can they share and interact with Mr. Jia's spirit? Can a higher-level leadership mechanism be established, from individual monopoly to shared monopoly with collective decision-making, etc. In other words, there should be a balance and sharing mechanism in decision-making. Currently, LeTV lacks such a mechanism.

"Isobath": Do you think this mechanism is easy to establish in LeTV's current environment?

Zeng Qiang: If Jia can study the history of Google and Facebook , he will find that entrepreneurs will spend some equity or salary to hire very good people to manage, and this is a "professional entrepreneur". On the one hand, he is an entrepreneur, and on the other hand, he will let professional managers take charge of the management team. Investors also think it is very normal. This is a very successful model in Silicon Valley. It is the same in China. Huawei and Haier have a very strong management team behind them. Although in China, the East tends to be a centralized ruler, there is usually a person with strong execution ability to take charge internally.

Abroad, investors, professional entrepreneurs and professional managers have formed a very successful ecosystem. In the future, we will also use such a system as a condition for the next investment. This is a very successful system. In the future, we hope that through your cases, more investors and entrepreneurs will increase their understanding.

"Depth Line": As an investor, you publicly stand up and give advice to entrepreneurs. This is rare in China. At the same time, we have also read a lot of information and noticed that when you first invested in LeTV, you thought that LeTV Auto, Yidao, and LeTV Sports were too crazy and did not invest. The current situation has also verified your original judgment. So, we want to know, under LeTV's existing communication mechanism, whether it is internal communication or external information feedback to Mr. Jia, what is his attitude towards investors' suggestions? Will he be a person who will slowly turn according to the foreign mechanism?

Zeng Qiang: I think Mr. Jia is very sharp and wise in entrepreneurship. Others can achieve ten, but he may have achieved 100, and his goal is 150. Compared with others, he is far more successful. For example, compared with Xiaomi, his strategy is higher, and compared with Baidu, he is also very powerful. In my opinion, Mr. Jia is a very successful person. From BAT (Baidu, Alibaba , Tencent) to TABLE (Tencent, Alibaba, Baidu, LeTV), he has promoted the successful transformation of China's Internet model. It's just that TABLE's leg is not stable yet. What he lacks now is not just a problem of funds. If it is a problem of funds, we can always provide 5-10 billion to support him. What LeTV lacks is the (ability) in organizational structure, corporate governance, and future tactical execution. If we can reach a high degree of consensus on these three issues, I think the opportunity is still very great.

"The Depth Line": You said that you can come up with 5-10 billion to support him at any time. Is that in addition to the original 10 billion?

Zeng Qiang: Yes, I think my investors and I are willing to invest, and we can invest more.

How to evaluate Jia Yueting

"Isobath": We see that you give Mr. Jia a very high evaluation. Can you tell us about the factors behind your evaluation of Mr. Jia?

Zeng Qiang: First, from a strategic point of view, I am also an entrepreneur, and Jia's ecological strategy is beyond my imagination of entrepreneurs. Today, LeTV and other entrepreneurs are facing three big mountains. Either they will be acquired by these three mountains, or they will burn money and go bankrupt. So if we can cross or surpass these three mountains, it will be a manifestation of the strength of China's Internet, but it will also be quite difficult. We must construct a new strategy from a higher dimension to have a chance. If you still use two dimensions, it is impossible, just like if the RMB becomes an international currency, it will never work with foreign exchange management. Perhaps it will be possible to establish a digital currency to compete with the United States.

The same is true for LeTV. If there is no competition at a higher level, it will be difficult to overcome these three mountains. The army, navy and air force must be involved. Therefore, we see that in China, those who make hardware do not make software, and those who make software do not make hardware. Instead, LeTV is one of the representatives of hardware, software and content. This is the great aspect of LeTV.

In addition, the lights in LeTV's company are still on after 10 o'clock every night. At this time, one-third of the teams of many listed companies have left. In China, there are not many companies like LeTV that have tens of thousands of people working day and night to push forward. Lao Jia has this kind of charm.

Based on these points, plus his honesty, I admire him very much.

"The Depth Line": Does this honesty come from his credibility or his mode of communication with shareholders and investors?

Zeng Qiang: I think it's a bit of both. He values ​​products and technology, but he is too frank with the capital market. This frankness shows us the human side. So, we had the opportunity to sell LeTV's stock at 55 yuan, and we could have made 20 yuan at that time. We could also sell it at 50 yuan or 45 yuan, but as a shareholder who values ​​LeTV's mid- to long-term value, we did not do so. Instead, we hope to see its changes. We have held (LeTV's stock) for a year and hope to see its greater potential.

"Isobath": If we hold on to the stock for more than a year, can we actually get out of the predicament?

Zeng Qiang: Yes, we could have gotten out of this predicament in 6 months, that was in May or June this year, but we didn’t.

Should LeTV Auto stay or go?

"The Depth Line": I hope to see his (Mr. Jia) transformation. How much time do you allow for it?

Zeng Qiang: The shorter the time given to him, the better. I think cars may be a temptation for Mr. Jia, especially for a man of his age, who pursues cars more than (original words, reporter's note) - I can understand him. Currently, the prototype of LeEco Auto has been displayed in Las Vegas, and he has invested so much time and energy, it must be difficult for him to give up.

"Isobath": We see the prospects of smart cars described by LeTV's automotive sector, but how much core technology does LeTV Auto actually have?

Zeng Qiang: The answer to this question will be revealed on January 3rd. Whether it is performance or other aspects, it will have a stunning appearance in Las Vegas. I am not in a position to disclose it now.

"Isobath": We are worried that it is a very good system integrator that integrates the world's best products together, but does it have the core technology or the ability to control the industrial chain?

Zeng Qiang: Electric car manufacturers around the world can be divided into two categories. One category is traditional enterprises. Now large automobile companies are transforming to electric cars. Another category is Internet companies, which are also making electric cars. However, both have defects. For example, traditional automobile companies are good in safety and mechanical aspects, but they are not as good as Internet companies in terms of content, Internet user interface, marketing methods, etc. However, Internet companies may not be familiar with safety, mechanical aspects, and large-scale mechanical manufacturing. I think for Chinese people, cars are like encountering a beautiful woman from a foreign country. Because they are more charming and mysterious, they may invest more money and energy, and they may also be dragged down.

In this regard, we are also working on a plan that may be able to properly resolve both issues, but I am not in a position to disclose it here.

Recommendations for the future

"Isobath": Just like the question I asked you at the beginning, LeEco's ecosystem creates synergistic value and deferred value. When you invested at that time, you were very optimistic and believed that it could surpass the three giants of BAT. However, now the non-listed sector has become a drag on listed companies and even caused stock prices to fall. Do you have any good suggestions or solutions to this problem?

Zeng Qiang: My personal suggestion, and I don't represent Jia's suggestion, is that first of all, I suggest making LeTV and LeEco two different brands, but they can have the same shareholder. For example, Bill Gates is a Microsoft FUNDER and a major shareholder of Microsoft. He also does charity. The same is true for Facebook's Zuckerberg. He is a Facebook FUNDER and a SHAREHOLDER. Of course, he also runs a service organization for children around the world. LeTV can also separate the two brands in this way.

The second is to separate the CEO from the SHAREHOLDER (shareholder). If you want to be the CEO of a listed company, you can only be a shareholder of other sectors. If you want to be the CEO of an automobile company, you should give the position of CEO of a listed company to someone with better execution capabilities. The three roles of FUNDER, shareholder, and CEO should be separated.

Isodepth: I think even if the second problem is easy to solve, the first solution is very challenging. LeTV emphasizes the value of the ecosystem. For example, other LeTV sectors can provide content support for LeTV, which is not available in other brands. If the two brands are separated, it may return to the original point. On this issue, how do you think LeTV should build its differentiated competitive capabilities?

Zeng Qiang: Now, LeEco's seven ecosystems are called one brand, and they are all LeEco-related. But I think LeEco Auto should not be called LeEco, because it will drag down the system, and the car's current feedback is not strong. I think the other ecosystems have a certain feedback. Looking into the future, LeEco Auto can be separated and the other sectors can be put into LeEco, a listed company. These sectors do not necessarily have to go abroad, they can be in China.

"Isobath": Do you think Mr. Jia will do this?

Zeng Qiang: This is what I hope for, but he may not do so.

Of course, I think that the listing is not immediate, but should be done when there is profit or about to be profit. We have a high degree of agreement on this point, whether it is listed in the A-share market or overseas. I can understand why he listed overseas, because China does not recognize this kind of Internet company. Almost all of China's great Internet companies cannot be listed according to the regulations of the China Securities Regulatory Commission and the existing listing regulations of the finance department. When Tencent, Baidu, Alibaba , and JD.com were listed, none of them met the requirements. This is because the domestic capital market has not kept up, and the Chinese regulatory system has not kept up, so I can understand why he put it overseas.

But why does LeEco want to go public now? They benefited from it in the past, but now they are dragging it down. I think focus has become very important for LeEco. Now the listed company has four sectors, LeEco Cloud, TV, video, and live broadcast. The other sectors are built one by one. We should do each sector thoroughly and well, make it profitable, and then solve the distribution of brands, equity, and income between each sector and the listed company. This is promising. LeEco Film has announced that it will be included, and the mobile phone will be profitable within two years.

"Isobath": What do you think is the root cause of LeEco's mobile phone supply chain problems? Have we reviewed this issue?

Zeng Qiang: We are also one of the investors in LeEco mobile phones. We believe that it is right and reasonable to expand at a negative profit in the early stage. Now it should become a profitable project and find a profitable model, such as advertisers who use value-added services to provide digital services like LeEco TV. Of course, this profit model needs to be verified now, but the root of the mobile phone problem is still whether this sector can make profits on its own.

"Isobath": What do you think the differentiated competitive capabilities of LeTV should be based on?

Zeng Qiang: I think the first is the army, navy and air force. Others are fighting alone. Its sales do not require advertising. It relies entirely on brand sales. Its interactivity has gradually been reflected. LeTV TV has brought about the development of LeTV Sports, and LeTV TV has brought sales of mobile terminals. The chemical reaction has been formed, but the Chinese capital market is not very patient.

In fact, Baidu and Alibaba have both gone through a lonely five-year period of burning money. Fortunately, they were not listed companies at that time. Now some shareholders, some rumor-mongers, and people who were defeated by LeTV's competition have all attacked LeTV. This is also a phenomenon in China. For a long time, it has been difficult to see so many people hunting down a company.

This shows two problems. The policies formulated by LeTV in the past two years are somewhat incomplete, and the relationship between the upstream and downstream of the industrial chain has not been handled well. On the other hand, it also shows its strength. Every time it enters an industry, it brings about earth-shaking changes. Many people are afraid of it, and many people add fuel to the fire. In fact, this is also the sadness of Chinese society. Such a big country as China cannot let go of the heart of subversion, and its behavior is relatively short-term.

Therefore, we believe that China needs a mid- to long-term value investor, LeTV needs to have a sense of proportion, shareholders also need to have a deeper understanding of LeTV, and competitors and LeTV also need to reach a compromise and inclusive ecosystem.

"Deep Line": LeEco's capital chain problems are now appearing one after another in various sectors like a fuse. When do you think there will be a turnaround?

Zeng Qiang: We now have a plan internally, which is inconvenient to disclose, but there is still hope and there will be a way to do it.

"Isobath": In what aspects will there be a turning point? Can you point me in a direction?

Zeng Qiang: It all depends on Mr. Jia's one thought. There are many mid- to long-term value investors who believe that now is a good period to invest. A "value trough" for mid- to long-term investments has already appeared, and it is a good time to enter. I just hope that Mr. Jia's one thought can lead to certain adjustments to the company's strategy, corporate governance, and the order of execution of the company's strategy.

"The Depth Line": When you say corporate governance, do you mean that you hope that Mr. Jia can give up more equity and then establish a good balance in the board of directors or decision-making level?

Zeng Qiang: Yes, for Mr. Jia, we must protect his leadership position and strategic height, while at the same time providing him with certain checks and balances and complementarity in areas where he is lacking in finance and assessment.

"Isobath": We know that listing in China is different from listing abroad. The issue of equal rights for equal shares among domestic listed companies will indeed affect their control to a certain extent?

Zeng Qiang: That's right. This is due to the imperfection of China's capital market. China's capital market, including the ChiNext, is not designed according to the model of innovative enterprises but according to the model of traditional enterprises. For LeTV, LeTV cannot change the Chinese capital market and can only adapt to it.

"Isobath": We know that both capital and law often rely on structural design. Is there a mechanism design that can both ensure its control and achieve a balance in corporate governance?

Zeng Qiang: We have a contingency plan. Didn’t Confucius say, “If he is not angry, he will not be enlightened; if he is not frustrated, he will not speak out.” When he has an epiphany, we will put it forward.

"Isobath": Can you reveal the schedule?

Zeng Qiang: It can be one day, one year or one month.

"Depth Line": Will you always adhere to the concept of mid- to long-term value investment? Are there other investors in talks with LeTV? Will we increase the proportion of value investment in LeTV in the future?

Zeng Qiang: Everything is possible.

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.