The billionaire chairman of China’s Leshi Internet Information and Technology (LeEco, 樂視) has admitted his technology empire is running out of cash to sustain a headlong rush into businesses from electric cars to smartphones.
In a lengthy letter to employees, company cofounder Jia Yueting (賈躍亭) apologized to shareholders and pledged to slash his income to 1 yuan (US$0.15), slow LeEco’s madcap pace of expansion and move the company toward a more moderate phase of growth.
LeEco is the umbrella holding company for a sprawling family of firms that includes sports media, automobiles, smartphones and TVs.
The company, known for its LeTV streaming service, has aggressively pursued funding and placed bets on new ventures, from an electric car plant in Nevada to a US$2 billion acquisition of California-based TV maker Vizio Inc.
“No company has had such an experience, a simultaneous time in ice and fire,” Jia wrote in the letter, obtained by Bloomberg News, describing LeEco’s rise and subsequent issues. “We blindly sped ahead, and our cash demand ballooned. We got overextended in our global strategy. At the same time, our capital and resources were in fact limited.”
Analysts have begun to question LeEco’s longer-term prospects, given the opacity surrounding investments by its various subsidiaries and a reliance on equity-backed loans.
Shares in LeEco and Coolpad Group (酷派), the two listed companies Jia chairs, were little changed after Monday’s selloff.
Coolpad, which assembles LeEco’s smartphones alongside its own brand, dived almost 18 percent on Monday to its lowest in more than three years.
LeEco was up less than 1 percent after marking a one-year trough on Monday.
“The company spread itself too quickly. They have a big ambition to create an ecosystem for different devices, not only for phones and TVs and set-top boxes, but for vehicles,” Gartner Inc research director Sandy Shen (沈哲怡) said. “They have a big ambition that is too big to swallow at this moment.”
Jia highlighted measures to lessen the company’s burden in his memo.
LeEco is to immediately begin cost-cutting programs, decrease subsidies for customers and focus on existing businesses instead of new ones, he said, apologizing to shareholders in response to criticism that he has not paid them enough attention.
“They definitely need to cut back quite a bit to sustain the cash flow,” Shen said. “Their core business is still quite strong, because they have a lot of good content.”
A self-made billionaire who got his start working in information technology at a local tax bureau, Jia founded LeEco in 2004, one of the first companies in China to stream TV shows and movies to paying subscribers.
He entered the smart TV businesses in 2013, followed by the smartphone market last year.
However, his growing empire relies on a risky financing model.
Jia has borrowed against his shares in LeEco for cash that he invested into his other companies, regulatory filings showed.
That practice has invited scrutiny in the US, where Jia is trying to get electric carmaking venture Faraday Future off the ground.
Nevada Treasurer Dan Schwartz has balked at issuing bonds needed to get the project running, citing doubts about Jia’s ability to raise funds.
LeEco stock has plummeted by almost one-third since the start of the year.
Jia has showed off an electronic concept car dubbed the LeSee, and in September raised more than US$1 billion from a consortium of Chinese investors to make it.
However, in his memo on Monday, Jia singled out the car division for its profligacy, saying it had already spent 10 billion yuan in early development.
“Our fundraising ability isn’t strong,” Jia wrote. “The scale of our external fundraising had trouble satisfying the demands of our rapid expansion.”
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