(Bloomberg Gadfly) -- Baidu Inc. just bet 1 billion yuan ($158 million) that smart TVs, and their operating systems, have a bright future.
Skyworth Digital Holdings Ltd. announced on Friday that a wholly owned subsidiary of the Chinese search engine will take an 11 percent stake in its Coocaa business. While Hong Kong-based Skyworth's own interest gets diluted, it shouldn't be too disappointed. Coocaa's valuation will go from 3.9 billion yuan eight months ago to 9.2 billion yuan.
It was an investment by Tencent Holdings Ltd. in June that gave Coocaa that previous valuation, and that came on the heels of an earlier round of funding from Baidu's video-streaming affiliate, iQiyi Inc.
Coocaa is both a brand of smart TV as well as the operating system and platform that underpins it. Shares in Skyworth, which gets the bulk of its revenue from making the TV sets, are trading at less than half the HK$8.08 peak they reached in May 2015 amid slowing sales growth and two years of losses.
Coocaa is Skyworth's attempt to turn TVs from a mere commodity product into a value-added device. It wants to leverage the platform to sell content and advertising.
That's where Baidu comes in. Ads remain the search engine's bread and butter, and TVs are still ubiquitous enough to offer an entry into Chinese households. Coocaa has an installed base of only 27 million units, yet 49 percent of those are switched on at least once a week. Skyworth expects Coocaa's revenue to almost double this fiscal year to HK$300 million ($38 million), driven by ads and content.
This low base, content and ad focus, along with a prime position in Chinese households, makes Coocaa the kind of business Baidu would want to tap. Having social networking giant Tencent as a fellow investor is a bonus.
This column does not necessarily reflect the opinion of Bloomberg LP and its owners.
Tim Culpan is a technology columnist for Bloomberg Gadfly. He previously covered technology for Bloomberg News.
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