Qutuotiao Inc. (QTT) Accused of Misleading Shareholders
Qutuotiao held its IPO on September 14, 2018, offering 13.8 million shares at $7.00 per share for gross proceeds of approximately $85.8 million. As noted in the Company’s IPO documents, a majority of the Company’s revenues comes from advertising and a decline in advertising revenue can harm the business. On December 10, 2019, Wolfpack Research published a report alleging that the Company had overstated revenues and had replaced its third-party advertising agent with a related party, thereby bypassing the agent’s oversight and allowing the Company to “perpetrate the unmitigated ad fraud that observed in sample.” Then, on July 15, 2020, a report revealed that Qutoutiao had allowed ads on its platform that promoted impossible claims from weight loss products. One such ad offered free weight-loss products valued at $14,300 that would help users lose more than 30 pounds per month. Such false advertisements are subject to regulatory scrutiny and can cause the Company reputational harm and declining advertising revenue. Finally, on July 17, 2020, Chinese media reported that Qutourtiao’s app had been removed from domestic Android app stores. Since these disclosures, the stock is trading at $2.55, down significantly from its $7.00 IPO price.
