What happened
Actions of Qutoutiao (NASDAQ: QTT), the Chinese mobile entertainment operator, dove today after the company was called for posting misleading ads on its site.
As of 1:07 pm EDT, shares fell 17.2%.
Image source: Getty Images.
And that
At a consumer rights gala hosted by Chinese state media last night, the hosts said Qutoutiao had allowed ads on their platform promoting exaggerated or impossible claims of weight-loss products, including one offering free valued weight-loss products. at $ 14,300 that would help users lose over 30 pounds a month.
Qutoutiao immediately apologized, vowing to do a better job of spotting ads on his platform. The company’s developer said in a statement: “We immediately established a special team to conduct a thorough evaluation of the relevant ads. We will uncover and ban problems once they are found.”
Short seller Wolfpack Research took advantage of the news, saying that most of Qutoutiao’s ads come from other companies in which the CEO has an interest, and investors may be nervous about fraud in Chinese companies after the collapse of Lucky Coffee at the beginning of this year. A push by the Trump administration to oust Chinese companies from US stock exchanges if they don’t meet certain regulatory standards could also threaten Qutoutiao.
Now what
Chinese tech stocks have largely recovered this year as the country has done a better job of containing COVID-19 than the US, and China has just reported that its economy grew 3.2% in the second quarter, after a decrease of 6.8% in the first quarter. Meanwhile, Chinese tech companies have attracted American investors as they tend to trade at a discount compared to their US counterparts, and sectors like e-commerce have received a boost from the pandemic. For example, Alibaba, JD.comand Tencent They have all earned more than 40% since this year. Qutoutiao, on the other hand, has fallen by a third, and revelations about its questionable advertising practices will only weigh on a potential recovery.
