Qutoutiao (NASDAQ: QTT), a Chinese news and video aggregator, was called out on CCTV—the state-run China Central Television channel—on Thursday night during the infamous “315” annual event for its advertising misbehaviors. The firm’s NASDAQ-listed stock price plunged by 23% to USD 2.8 per share at close on the news.
The annual TV show, known as 315 in reference to World Consumer Rights Day on March 15, is a two-hour mix of investigative reports that dig into misconduct by local and international companies. Since 1991, when it was first aired, the annual show always came out on March 15, but was postponed this year due to the coronavirus pandemic.
Yesterday’s show exposed how false ads, that are promoting counterfeit products, are rampant on Qutoutiao’s app. In one video clip, an undercover came up with a fake weight-loss product which obviously overpromised results and easily managed to post ads on the app via an authorized Qutoutiao agent without any additional screening. Further, the show demonstrated how the app hosts links to illegal online gambling platforms.
Shanghai-based Qutoutiao apologized yesterday on Weibo and released a statement this morning saying that it has formed a special team looking into the case, and that it has already suspended its head of advertising sales. The firm also said it will make it harder to post ads and encourage users to report problematic ones.
The Qutoutiao app has been removed from Chinese app stores without a comeback date.
Founded in 2016, the company was once considered a competitor to ByteDance’s Jinri Toutiao, and counted deep-pocketed Tencent and Alibaba among its investors. In September 2018, it raised USD 84 million in its US IPO.
However, the firm’s growth has been slowing down. According to its first-quarter earnings, Qutoutiao has 138.3 million monthly active users (MAUs) on its eponymous flagship app plus its e-book reading app Midu, up 24.2% year-on-year, much lower than its 2019 Q1 growth when the firm reported a 297.4% YoY-increase.
Net revenues in Q1 2020 climbed 26.2% YoY to USD 199.4 million, but the company still recorded a net loss of USD 75.1 million with a narrower loss margin of 37.7%.