Exposure to the US revenue is much lower than expected, layoffs 1/3
Bloomberg quoted sources as saying that LeTV's 2016 US market revenue is far from expected, and the company is planning to lay off more than one-third of its jobs in the US. This shows that LeTV's US market plan will shrink sharply.
Due to poor revenue and tight cash flow, LeTV CEO Jia Yueting is shrinking LeTV's global expansion plan. In October last year, LeTV held a grand launch in San Francisco, high-profile entry into the North American market. At the press conference, LeTV demonstrated a range of products, including HDTVs, cell phones, virtual reality devices and electric bikes. However, according to sources, after the October conference, LeTV's revenue in the US last year was less than $15 million, far below the original target of $100 million.
LeTV's products sold in the US so far include TVs, smartphones and accessories. According to the news, LeTV USA also plans to lay off about 175 people, reducing the total number of employees to about 300.
LeEco declined to comment on the news.
On Monday, LeEco said it had abandoned its $2 billion acquisition of US television maker Vizio due to regulatory obstacles. The failure of the deal also means that LeEco will further shrink its US market plan. The two companies said that as an alternative, they will cooperate to bring Vizio's products to the Chinese market and integrate LeTV's content into the Vizio platform.
LeTV is not familiar with the US market. At the same time, the company also experienced a tight cash flow situation. The departure of executives and layoffs have further exacerbated concerns about the future of LeTV's US. Earlier this month, LeTV USA delayed the issuance of employee salaries. According to former employees and current employees, managers from China lack understanding of the US market, which is frustrating for many American employees.
At last year's press conference, Jia Yueting said that LeTV USA employs more than 500 people and continues to recruit new employees every week. In addition, LeTV purchased 49 acres of land (approximately 198,000 square meters) from Santa Clara, Calif., and plans to build an office park with a capacity of up to 12,000 employees. But sources said the plan has now been abandoned.
After experiencing rapid expansion, Jia Yueting admitted in an email to employees at the end of last year that LeTV had encountered difficulties in financing. Some suppliers said that LeTV was in arrears with the payment and the company also gave up the right to broadcast certain sports events.
Currently, LeTV USA employs approximately 475 people in San Jose, California. According to sources, LeTV has planned a new round of layoffs for several months, but the exact timing of layoffs depends on when the company can raise enough funds to pay employees' compensation for turnover.
After LeEco announced its entry into the US, analysts suspect that it may be difficult for the company to replicate its business model to markets outside of China, where brand awareness is low. LeTV's aggressive international expansion strategy is very different from China's Internet giants Baidu, Alibaba and Tencent. These companies have adopted a gradual strategy to enter the US market, set up a small office in Silicon Valley, and focus on investing in US startups.
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