LeEco is one of the fastest growing companies we’ve ever seen, and that’s saying something. They’ve recently extended their reach into the US market after building a very strong user base in China from cheap TVs, smartphones, and other electronic devices. They even bought Vizio for $2 billion to keep up that growth.
While the company has grown exceptionally quickly over the past couple years, it’s important to remember that they aren’t sitting on a war chest of money to make large acquisitions. This isn’t Google or Facebook throwing a couple billion at a startup to capture some talent and a new idea, it’s a company that’s still trying to grow and grow and avoid a wave of debt creeping up on it. And for LeEco, it looks like that wave is just a little bit closer than they thought it was.
CEO of the company, Jia Yueting, has had to admit that LeEco is running low on cash because of their drastic acquisitions and expansions. Part of LeEco’s success came from heavily subsidizing their devices and selling them close to cost, but that makes it difficult to keep up a cash reserve to continue buying and growing. It’s a strategy that we usually see from startups who are just looking to build up market share, and it becomes increasingly difficult to pull off as the company gets bigger.
But what’s done is done, so the next step is to figure out what LeEco is going to do to avoid going under completely. Jia has already stated that he’s going to cut his yearly salary to just 1 yuan per year, and LeEco will likely put a stop to their rapid growth operations for the time being. We’ll also see LeEco start to trim its workforce a bit, and some of the costs will almost definitely be passed onto customers purchasing LeEco products. Can’t sell at razor-thin margins forever.
Hopefully these moves are enough to keep LeEco out of the red, but they’re going to have a rough road ahead of them for the foreseeable future.