BABA Alibaba Group Holding Limited

By Alyssa Abkowitz 

BEIJING--The iQiyi Inc. video-streaming unit of search-engine giant Baidu Inc. has filed for an initial public offering in the U.S., promoting its ability to use artificial intelligence and user data to deliver videos that generate billions of views.

In a U.S. regulatory filing, Baidu said it would list iQiyi on the Nasdaq exchange and is seeking to raise around $1.5 billion. Analysts at Jefferies have valued iQiyi at $17 billion.

The move comes as Baidu looks to raise money for the loss-making unit to stay ahead in the fiercely competitive video-streaming sector where tech titans Tencent Holdings Ltd. and Alibaba Group Holding Ltd. also have strong plays. Baidu told investors in its most recent earnings call that it would remain iQiyi's controlling shareholder.

IQiyi, which was founded in 2010 will list under the ticker IQ, said it is China's largest video-streaming service by amount of time spent watching, with more than 50 million paid subscribers.

Two of its original series, "The Mystic Nine" and "Burning Ice," have together garnered more than 13 billion views, the company said in its filing with the U.S. Securities and Exchange Commission.

"We distinguish ourselves in the online entertainment industry by our leading technology platform powered by advanced AI, big data analytics and other core proprietary technologies," the company said in its filing. "Our core proprietary technologies are critical to producing content that caters to user tastes, delivering superior entertainment experience to our users."

In China, people spend the majority of their online-entertainment time on video, and the market overall is expected to grow to 688 billion yuan ($109 billion) by 2022, up from about 51 billion yuan in 2012, iQiyi said, citing a report by iResearch Consulting Group.

But a tough competitive environment and the costs of providing content have made streaming a money-losing proposition for Baidu, as well as for its internet rivals Tencent and Alibaba.

"We incurred net losses since our inception," iQiyi said in its filing, including losses of 3.7 billion yuan in 2017.

Junwen Woo, a senior analyst at IHS Markit who tracks online video in Asia, said iQiyi has potential because of its use of AI, which helps the company differentiate from competing Chinese video platforms operated by much bigger rivals Alibaba and Tencent.

"They can know what is the most popular content and what are the most favorite things viewers like--and what is coming up next," she said.

In fundraising last year, iQiyi raised $1.53 billion, an investment that came months after investors balked at a $2.3 billion buyout bid from a group led by Baidu Chief Executive Robin Li, saying the proposal undervalued the unit.

Goldman Sachs, Credit Suisse and Bank of America Merrill Lynch are the lead underwriters of the IPO.

Wayne Ma in Hong Kong contributed to this article.

Write to Alyssa Abkowitz at alyssa.abkowitz@wsj.com

(END) Dow Jones Newswires

February 28, 2018 05:48 ET (10:48 GMT)

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