Wednesday, January 19, 2022

Earnings Preview for iQIYI Inc. (IQ): What to Expect From Earnings?

iQiyi (NASDAQ: IQ) released its most recent results for the fourth quarter and full year. Subscribers continue to leave the company, and which slows down revenue growth. Could this be a sign that the Chinese market is becoming increasingly competitive, making it harder for iQiyi to stay afloat?


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Despite declining subscriptions and online advertising revenues, iQIYI’s fourth-quarter revenues decreased 1 % year-on-year to 7.5 billion yuan ($1.1 billion). Over the past quarter, iQiyi’s subscriber number decreased by 5% to just over 101 million.


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Although the service had problems, its revenues increased by 2% at the end of the year, from 8% the previous year. On a positive note, operating losses for the quarter were down 48 % to 1.3 billion yuan ($ 200.4 million). This resulted in the negative one decreasing from 34% in 2019 to 18% in 2020. A 35 % drop in operating loss occurred likewise.

In terms of revenue and subscribers, investors find the decline in iQIYI Inc. (IQ)services worrying as they fear that the company will not remain competitive given growing competition. According to some analysts, however, the number of subscribers’ decline is temporary and is linked to the recent rise in subscription fees. In time, subscribers will stop churning, and the quality of content will appreciate the company’s efforts.

To avoid falling behind iQiyi’s competitors, such as Bilibili, Douyin, and Kuaishou, the company has to make a bigger investment in new shows. Costs are likely to rise even more under this scenario. Since its inception, IQiyi has continued to incur high costs and has been unprofitable. Expenditures on content interfere with breaking even. Such investments may be regarded as necessary by investors to increase their market share.

A rumbling trend in the subscriber numbers suggests that growth may not emerge for iQiyi anytime soon. In this respect, iQiyi has been struggling with faster growth, although it is known as “China’s Netflix.” It is a promising player, but the company is unlikely to expand rapidly.

On the 24th of February, iQIYI Inc. (IQ) shares were up 0.48% and as high as $24.89 on the stock market. During the last trading session, the prices ranged between $23.56 and $24.89. The company shares are 7.96% below the $22.89 target price. The company has a market cap of $18.90 billion.

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