In This Article:
Since the start of the year, China’s iQIYI (NASDAQ:IQ) stock has been on a tear. A Chinese internet vide company, iQIYI was spun off from Chinese search engine Baidu (NASDAQ:BIDU).
IQ stock, which sold for under $15 at the start of January, was trading for $26 this afternoon. (IQ stock had briefly topped $43 after its April 2018 IPO.) But the recent rally of IQ stock price is the kind of run-up that justifies the faith of bulls in what has been called the “Netflix (NASDAQ:NFLX) of China.”
Those who are considering buying or selling IQ stock must determine if the rally of iQiyi stock was triggered by the passion of the market, or if the company itself is outperforming.
InvestorPlace - Stock Market News, Stock Advice & Trading Tips
What Is iQIYI?
As I wrote in August, IQ is nothing like Netflix. China’s streaming market is far more competitive than that of the U.S. Units of Tencent Holding (OTCMKTS:TCEHY) and Alibaba Group Holding (NASDAQ:BABA) have also entered the market. Both have more capital behind them than Baidu could muster, which is why IQ stock was spun off.
In some ways, China’s internet video market is more advanced than America’s. More of China’s internet videos are viewed on mobile devices. The business models of the company’s streaming companies are sophisticated.
iQIYI’s revenue mix is a cross between Alphabet’s (NASDAQ:GOOGL) YouTube, Netflix, and the Valve service from Stream. Founder Tim Gong said before the IPO of IQ stock that 40% of its revenue came from advertising, 33% from subscribers and the remainder from games. IQ has a licensing agreement for Netflix content, but its own shows generate most of its revenue.
IQiyi skews young. It’s aimed at the generation of consumers Americans call millennials, the “Little Emperors” who have known nothing but capitalism and have grown up in one-child households. Gong says the company further monetizes its audience by selling merchandise.
How Is IQ Doing?
IQiyi’s fourth-quarter earnings , released in February, showed growth of 55% year-over-year. But that was from a relatively small base. Its total revenue for the quarter came in at $1 billion, with an operating loss of $483 million. The company’s losses are increasing as it adds new types of content, including robot fights and dance contests.
U.S. analysts swooned over these numbers, which showed a narrower loss than anticipated, and almost $28 million more revenue. than analysts, on average, had expected They noted that it had 87.4 million subscribers, almost all of them paid, while its membership revenue had jumped 66% YoY,