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HONG KONG (Reuters Breakingviews) - China's hottest news source has secured a sci-fi valuation. A recent fundraising values ByteDance, the group behind a popular news-feed app, at about $11 billion, according to a person familiar with the matter. That the company has raised so much in a tricky sector suggests buzzwords such as artificial intelligence and big data can act like clickbait for investors.
The 5-year-old startup runs Toutiao, or "Today's Headlines". It raised $1 billion, according to Chinese media. That is a huge leap, when a previous funding round in 2014 valued the whole firm at just $500 million.
First, the good news. Toutiao boasts 78 million daily active users, which it says spend an average of 76 minutes a day on the platform. That's a lot of reading - and should be a big draw for advertisers. China's overall mobile advertising market is growing fast. In total, it should top 497 billion yuan ($72 billion) in sales by 2020, up from 157 billion yuan last year, analysts at Jefferies reckon.
And Toutiao checks two other boxes for venture capitalists: star management and international ambition. Last year it hired Liu Zhen, a former Uber China executive. In February, it bought a U.S. video-sharing platform.
Yet news apps elsewhere have turned into sob stories. Flipboard in the United States was valued at up to $800 million in 2013. But it has since struggled to compete against Facebook and Google News. Recent headlines have told a sorry saga of key departures, missed revenue targets, and failed takeover talks. Other standalone news readers like Prismatic, Pulse and News Republic have shut down or been bought by larger web groups.
Likewise, Toutiao faces fierce competition from Tencent, Alibaba, Baidu, and traditional media portals. Holding onto market share will be key: Toutiao is heavily reliant on ad dollars, which in turn follow China's fickle smartphone users wherever they go.
So the unicorn is betting on AI and machine learning. The idea is that its technology can sift user data to curate news articles, videos, blogs, and question-and-answer pieces better than anyone else. That sounds exciting, but Toutiao could quickly turn into yesterday's news.
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