A photo of the staff of Chinese tech giant, LeEco, lining up en masse for departure procedures last week went viral on Chinese social networks. It was taken at LeEco’s human resources service center. LeEco insiders confirmed to NetEase, China’s leading news portal, that 10% of all staff, or about 1400 employees, are about to leave the company.

layoff
Photo from Weibo user Baicheng Yibei.

LeEco has officially denied that there would be large lay-offs. However, it is widely believed that the company is struggling with a funding crunch. Let’s take a close look at how the tech giant gained its moment of glory, and how it is now in the center of a storm.

China’s Netflix sails off

Known as China’s Netflix, Leshi Internet Information and Technology Corp. (Leshi or LeTV in short) was founded in Beijing in 2004. The internet streaming company was listed on the Shenzhen Stock Exchange in August 2010. A few years after the IPO, Leshi was integrated with its global business and EV operations; together the giant group has been called LeEco as of this January.

LeEco will revolve around its one million registered users to provide three key products: smartphones, smart homes and smart cars, and application services based on cloud computing and big data. The e-commerce platform and its video, music and sports websites are tools to sell their products and serve their users with all kinds of content, according to Liang Jun, LeEco’s president.

Since its IPO, Leshi’s stock price has ridden a virtual roller coaster, and the tech empire has expanded at an astonishing pace.

In January, LeEco at the Consumer Electronics Show announced its strategic partnership with the controversial American automobile startup Faraday Future, aiming to take on Tesla.

In October, LeEco held a grand press event in San Francisco to officially launch its ecosystem model, and unveiled a variety of smart devices. It is worth mentioning that the company showcased its LeSEE Pro super electric vehicle, although the car couldn’t run at all.

LeSEE
Jia Yueting, LeEco’s founder and CEO, and Ding Lei, co-founder of LeSEE. Photo from LeEco.

The worst November

The glorified image of LeEco began to crack when a photo of a LeEco supplier demanding payment appeared online in early November, sparking rumors that LeEco was confronted with a capital chain rupture. The tech giant, though, denied the rumor. Later, several of LeEco’s suppliers also denied that there were payments due. But this drama led to a bigger media storm over LeEco.

On November 6, LeEco CEO Jia Yueting sent a letter to LeEco employees, confessing that the tech giant’s “over fast expansion and great capital challenge”. He summarized two reasons for the current crisis: “On the one hand, LeEco invested enormous amounts of money into cars (LeSEE and Faraday Future) totalling over RMB 10 billion (USD 1.4 billion). That weakened my support for LeEco. On the other hand, LeEco is not a good fundraiser. Our financing methods are not diverse enough and our capital structure is not reasonable enough. Outside financing failed to meet the fast growing need for capital”.

Jia promised in his letter that, as part of his endeavor to alter the trend, he will have an annual salary of one single RMB.

Chinese media, though, questioned whether LeEco’s fundraising method was a Ponzi scheme. Zhao Hejuan, journalist and founder of tech blog TMT Post, said that LeEco had been taking advantage of the IPO of subsidiaries to support continual cash-burning of the LeEco mothership.

The company actually was too good at pawning its future. It even sells a package of smart TVs plus 50-year prime membership to consumers, according to its advertising.

LeEco's first generation of smartphone Le 1 was launched in April 2015. (Photo from Sina.com)
Photo from Sina.com.

The troubled LeEco and Jia Yueting then started a new fundraising mission to help LeEco rid itself of its cash shortage crisis. On November 16, the company announced that it raised USD 600 million financing from six companies, which are headed by Jia’s classmates from his MBA at China’s Cheung Kong Graduate School of Business.

Photo from LeEco.
Jia Yueting (Right) LeEco CEO signs the financing deal. Photo from LeEco.

These lenders, however, later clarified that the investments were individual actions, not by the six companies.

Besides financing troubles, the tech giant was reported to have started large layoffs over the past month, as mentioned at the beginning of this story.

As of this Tuesday, the stock price of Leshi has plunged about 19% since November 1, and more than RMB 10.8 billion of its market value has evaporated. Compared to its peak price in May last year, as much as RMB 40 billion has disappeared.

Photo from Baidu Images.
Leash’s stock price from early November to Dec. 6. Photo from Baidu Images.

Trading suspension

To halt the diving trend, Leshi on Wednesday requested a trading suspension. Rumor has it that the diving price might result in Jia’s losing control of the company. During the suspension, industry insiders say, Jia will start new financing, and restructure the company’s businesses.

According to domestic regulations, suspensions without important asset restructure could last for no more than three months, and if it’s more than three months, the company should hold a board meeting to decide whether the suspension will continue.

In summary, for LeEco’s three components, the listed company’s cash flow claims to be healthy; LeEco global branches are in a capital shortage and expanded too fast, and its cars operation is a capital blackhole.

Business insiders said that LeEco didn’t have many stably profitable businesses, and simply launched new operations, one after another, too fast.

Still, Jia on Sunday said that LeEco will continue to develop its EV arm, and is scheduled to launch a car under the partnership between LeEco and Faraday on January 3 in Las Vegas.

Below is the visualization of the winding path of tech giant LeEco.  

the-path-of-leeco

(Top photo from Flickr.com)

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Heather Wang
Heather is a writer at ACT. She is passionate about literature, photography and technology. She graduated from Shanghai University of International Business and Economics with a Master's Degree. Write to her: heather[at]allchinatech.com