Please ensure Javascript is enabled for purposes of website accessibility

Why Qutoutiao Stock Tumbled Today

By Jeremy Bowman - Jul 16, 2020 at 2:21PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

Shares of the Chinese mobile entertainment company fell after it was accused of running improper ads.

What happened

Shares of Qutoutiao (QTT -1.89%), the Chinese mobile entertainment operator, were diving today after the company was called out for running misleading ads on its site.

As of 1:07 p.m. EDT, the stock was down 17.2%.

A woman looking at her phone

Image source: Getty Images.

So what

At a consumer rights gala last night hosted by Chinese state media, the hosts said that Qutoutiao had allowed ads on its platform promoting exaggerated or impossible claims from weight-loss products, including one such ad that offered free weight-loss products valued at $14,300 that would help users lose more than 30 pounds a month.

Qutoutiao immediately apologized, promising to do a better job of screening ads on its platform. The developer of the company said in a statement, "We immediately established a special team to carry out comprehensive screening of relevant advertisements. We will uncover and ban the problems once they are found."

Short-seller Wolfpack Research took advantage of the news, saying that most of the Qutoutiao's ads come from other companies that the CEO has interests in, and investors may be nervous about fraud at Chinese companies following the collapse of Luckin Coffee earlier this year. A push from the Trump administration to eject Chinese companies from American stock exchanges if they don't conform to certain regulatory standards could also threaten Qutoutiao.

Now what

Chinese tech stocks have broadly rallied this year as the country has done a better job of containing COVID-19 than the U.S., and China just reported that its economy grew 3.2% in the second quarter, following a 6.8% decline in the first quarter. Meanwhile, Chinese tech companies have attracted U.S. investors as they tend to trade at a discount compared with their U.S. counterparts, and sectors like e-commerce have gotten a boost from the pandemic. For instance, AlibabaJD.com, and Tencent have all gained more than 40% since this year. Qutoutiao, on the other hand, has fallen by a third, and the revelations about its questionable advertising practices will only weigh on a potential recovery.

Jeremy Bowman has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

Qutoutiao Inc. Stock Quote
Qutoutiao Inc.
QTT
$1.04 (-1.89%) $0.02

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
379%
 
S&P 500 Returns
123%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 08/09/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.