Rise and Fall of LeEco: Spread Oneself Too Thin
When you try to be everything, you end up being nothing.
LeEco, formerly known as LeTV, was the first streaming video company to get listed in China and was pretty ambitious in terms of conquering markets which varied vastly. But from being one of the most promising companies to offering just promises to its creditors, the company went through one hell of a roller-coaster ride whose only direction was downwards.
So what went wrong? Why did the company have to lay-off workers and keep its creditors waiting long enough to force them file lawsuits? Let’s dive a bit deeper and find out what happened.
To better understand this editorial will be divided into three parts:
First: What the company charted out?
Second: Where the company landed?
Third: How did it manage to reach new lows?
What the company charted out?
LeEco as a company was like every child that ever lived on planet earth. As it grew out of its infancy stage, it started to widen its grip on the world and dreamt of the most ambitious things it could have without banking it on solid foundations. LeTV was the brainchild of Jia Yueting and was started as Leshi Internet Information and Technology Corp. in China 12 years ago. The Chinese company then claimed that it was the first company worldwide in its sector to ever go for an IPO.
The Chinese company’s video service did brilliantly well and was touted as ‘Netflix of China’ which enjoyed as many as 730 million subscribers a month. A normal company would’ve been happy with such performance, but LeTV didn’t only want to disrupt an industry or two, but redefine the way consumers interacted with their gadgets and consume technology. This is the reason why LeTV decided to diversify its portfolio and came out with different pieces of technology which would together stitch up and create an entire ecosystem of devices enhancing the customer’s experience. And this is also why LeTV was re-branded to LeEco, wherein Eco meant Ecosystem.
It all began with the LeTV ‘Superphones’ in 2014. Content with their video platform service, LeTV wanted to expand its horizons by including smartphones under its banner. Luckily for the company, aggressive marketing and cheap offerings led them to sell more than 5 million units within its first year of inception. Seeing it’s phone succeed in China, LeTV thought it would make sense to enter new markets and disrupt them with their value-for-money offerings. This saw LeTV make an appearance at CES in 2016 to announce the Le Max Pro which aimed to be a high end phone with the Snapdragon 820 onboard. Around the same time LeTV phones also made their debut in India by partnering with Flipkart to sell their phones online. They launched the Le 1s and Le Max; a budget and a flagship phone which garnered a combined sales of over 2 lakh in the first 30 days itself.
To make an even deeper impact in the US markets, LeEco executives decided that it had to get in one way or the other. Hence, LeEco decided to acquire US TV maker Vizio for $2 billion. Since Vizio already had an established presence in retail outlets such as Walmart, Best Buy & CostCo, it would prove to be the best entryway for LeEco products to the masses. To further strengthen its presence in the states, it also spend $250 million to buy 50 acres of land in the middle of Silicon Valley from Yahoo¹. The new facility would be able to house upto 12,000 employees which would support its domestic expansion.
LeSee was another much-talked about venture of LeEco in partnership with the Californian Faraday Future. LeEco was bankrolling a $1 billion dollar factory in Nevada¹ for manufacturing the car. LeEco had even partnered with Aston Martin to make RapidE; a four-door sports car with an all-electric powertrain.
LeEco is also involved in the selling of ‘Super TVs’ which have done pretty good sales in Hong Kong and mainland China. It offered free TVs to users who subscribed to their video streaming subscription for two years. In China, LeEco sold all it’s hardware through LeMall which is their e-commerce website. According to a top executive of the company, the website had more than 20 million unique visitors in a week.
Where the company landed?
If you just read what the company was onto after it decided to diversify you’d be sane to believe that the company was doing exceptionally well. A successful IPO, great video streaming business, tie-ups with companies like Aston Martin and setting up of headquarters in the heart of Silicon Valley all sounds like a company that’s roaring on success. But what if I told you, that the company progressed in the other direction? That things didn’t work out for them?
Just 6 months after their grand entry into US, Bloomberg ¹reported that LeEco had missed their sales goal by a wide margin and already had plans to lay-off employees. And since then, the company hasn’t looked back. It has been on a retrenchment spree and is trying back to gather all the money spread that was far beyond its reach. This led to lay-offs all around the world. In USA, the number of its employees which at its peak was close to around 470 has come down to a mere a 140-145. Reviews of the company on Glassdoor are absolutely blunt in telling how the company failed to be an even decent workplace.What’s even worse is that, according to Bloomberg, the layoffs were delayed for some time because LeEco wasn’t in the state to pay severance packages to these employees. Due to these layoffs, many employees in Beijing too have left their jobs in anticipation.
— Richard Lai (@richardlai) August 28, 2017
Even in India, 85% of its staff was fired along with the resignation of two top executives; Atul Jain (COO, Smart Electronics division) & Debashish Ghosh (COO, Interner Application , services and content). Even after liquidation, Alex Li (LeEco India Chief Operating Officer) denied plans of quitting the Indian market¹ or liquidating the stock. Apparently, the company is re-calibrating its business to ensure that the growth is matched by an equitable share of resources.
Hey! But what about the caaaars?
The plan of building a $1 billion factory in Nevada for Faraday Future, stands cancelled. The factory which was supposed to generate 13,000 jobs will no longer employ this number, thanks to frozen funds from LeEco. Although the factory which was promised will no longer be built, Faraday still plans to make a smaller one.
Even LeEco’s acquisition of US TV maker Vizio hit a road bump¹ and couldn’t be successful. Just 6 months after the acquisition was announced, LeEco came out saying that it couldn’t be completed due to ‘regulatory headwinds’. Although both the companies will still function as independent entities, Vizio has filed two lawsuits against LeEco to claim $100 million in the the $2 billion failed acquisition. Their partnership with Aston Martin has also ended which will make the RapidE even more elusive (which will also drive the price higher) as only 155 models will ever be produced.
How did it manage to reach new lows?
If there’s one thing that’s common between what the company charted out and where it ended was that both the situations had the company exist in extremes. It went from performing exceedingly well to a stage where its future existence was in question. Actually it still is. So let’s see how it winded down the python’s mouth.
If LeEco is anything, it’s the best example of how important financial planning and structuring is to appease voracious growth of a company. Because without planning it’s nothing but a tower of a deck of cards waiting to be blown away with the next ‘wind’.
LeEco went very quickly diversifying its business from 2010. With such rapid diversification, comes the requirement of solid cash injections which is still acceptable if the company is making money or has a sound economic plan. Companies like Uber, Zomato and Snap have reported losses mounting up to millions and have survived only on investments. LeEco has been very similar to these companies in this case. But that’s it. While Uber, Zomato and Snapchat have narrowed their actions and cash projections to a niche business, LeEco has opened its arms to more businesses than it could profitably handle.
As per their financials, in 2015, LeShi Internet¹ had reported profits to the tune of 573 million yuan ($85 million). But the profits only tell half the story. LeShi Internet has major stakes in at least 39 subsidiaries in China and because of the the public-private structure of the company these private companies’ financial performance is masked by that of LeShi Internet¹.
When it came to selling their phones, LeEco sold their phones at cost as they only wanted to monetize on their services which would be pre-installed on these phones. But with such intense competition in the video streaming business both in India and USA, revenue streams trickled leading to gaping holes in their bank accounts. This is when billionaire chairman Jia Yueting¹ admitted that his empire was running out of cash to sustain a long running business. “We blindly sped ahead, and our cash demand ballooned. We got over-extended in our global strategy. At the same time, our capital and resources were in fact limited.”
To continue running the company, the company laid even more aggressive plans and seeked for more investment. According to The New York Times¹, LeEco managed to raise over $2.1 billion since the start of 2016. Even with new investments, the problem only seemed to increase as LeEco continued to sign expensive deals globally.
Even their advertising expenditures were a much talked about thing. In India, to compete with other Chinese rivals like Oppo and Vivo, the company bled over ₹800 million a month¹. With such a humongous amount in advertising expenditures, next to no profits on their smartphones and failure in capturing user’s attention to their own services led to the downfall of the company in India.
To further confirm the company’s financial troubles, LeShi Internet for the first time in 7 years reported significant losses for the first half of the year. The company reported a loss¹ of 637 million yuan ($96.1 million) according to an earnings report. According to the company, bad publicity and a tarnished brand led to a “fluctuation in user loyalty” which further led to a decrease in advertising and subscription revenues.