iQIYI Stock Forecast: Netflix of China

iQIYI Stock Forecast: Though traditional broadcast and cable television are doing their best to stay relevant, streaming video is now the go-to entertainment solution for most consumers. Even if they aren’t quite ready to cut ties with their cable provider altogether, their streaming video subscriptions supplement broadcast and cable programming.

In the US, Netflix dominates the streaming market, and it has captured a healthy share of the global community as well. In fact, the service is available to consumers in more than 190 countries around the world.

However, there is a notable exception: Netflix is not available in China. Instead, Chinese consumers rely on streaming services from China’s own iQIYI – a company that recently celebrated its 100 millionth subscriber.

Considering that global leader Netflix has approximately 151.6 million subscribers, it is no surprise that investors want to learn more about iQIYI [NASDAQ: IQ]. Will this company continue its growth, and if so, will it reward shareholders with strong returns? What is the iQIYI stock forecast?

iQIYI: The Chinese Netflix

At its most basic, iQIYI is a technology company that delivers online entertainment to Chinese consumers.

The platform itself is an industry leader in terms of streaming technology and user interface. It leverages advanced artificial intelligence (AI) and big data analytics to create programming menus that cater to niche audiences.

Like Netflix, iQIYI [NASDAQ: IQ] offers a wide selection of programming produced through traditional means, along with a growing library of high-quality original content.

In 2017, iQIYI’s original content took five of the top ten spots for internet variety shows, and six of the top ten spots for internet drama series. Its first big hit, The Lost Tomb, was viewed more than 100 million times within the first 24 hours of release, and the program has since generated more than 4 billion total views.

From a user base perspective, iQIYI is one of the largest technology companies in China, and it is the largest internet video streaming service available to Chinese consumers.

Nationwide, the iQIYI brand is one of the most recognizable, making it popular among advertisers and content partners.

This translates into revenue in a variety of ways. For example, it gives iQIYI the ability to generate revenue through exclusive books, games, and other products based on characters from original programming.

In addition to the video streaming service, iQIYI [NASDAQ: IQ] partners with another company to operate the largest smart TV streaming service in China.

It has also worked to increase engagement among users through its entertainment-based social media platform, iQIYI Paopao, which permits fans to interact with favorite celebrities and the larger entertainment community.

Finally, iQIYI offers a feature that is the envy of Netflix subscribers – its user-generated content service. Emerging content producers create partner accounts with iQIYI to distribute and monetize their work, driving profits for both the producer and the company.

Overall, iQIYI’s various business lines generate revenue through online advertising, subscriptions, and revenue sharing from content distribution. Its audience is growing rapidly – more than 50 percent in the past year – which creates additional opportunities to increase revenue.

iQIYI Revenues Stream Higher 

The financial reports released in August 2019 caused investors and analysts some hesitation when it comes to buying iQIYI stock.

Revenue came in at $1 billion, which represents a year over year increase of 15 percent. However, the cost of revenue came in just as high, $1 billion as well, which is an increase of 14 percent.

The company is putting large amounts of cash into producing original content – a strategy that could pay off handsomely in the long run. However, for now, iQIYI investors saw a $0.49 loss per share, which is approximately 10 percent lower when compared to the same period last year.

Business leaders gave no indication that they were discouraged by the numbers, and they had plenty of optimism when discussing upcoming projects. For example, iQIYI plans to lead the industry as 5G technology rolls out. It has already entered into partnerships with China Mobile, China Telecom, and China Unicom to increase 5G research and development.

Some of the technologies the partnership is exploring include mobile edge computing, big data capabilities, network slicing, virtual reality, augmented reality, mixed reality, and 4K/8K ultra-high resolution. The plan is to integrate each of these cutting-edge technologies with iQIYI’s content catalogue to expand entertainment options available for consumers.

iQIYI Stock Forecast: Is It a Buy? 

The company behind Baidu [NASDAQ: BIDU], China’s largest online search engine, launched iQIYI in April 2010, and iQIYI held its IPO in March 2018. Wall Street wasn’t initially impressed with the organization’s potential, but by June 2018, iQIYI was hot.

Unfortunately, that June peak was the last real high for iQIYI stock prices, which dropped approximately 38 percent in the year that followed. This may have been influenced by the global political landscape and the general trend away from US investment in Chinese companies.

Today, iQIYI [NASDAQ: IQ] has a market cap of just under $13 billion, and some analysts are leaning towards iQIYI stock as a strong alternative to pricey US technology options. Sure, iQIYI isn’t profitable yet, but barring disaster it shows every sign of continued growth, and analysts predict profitability by 2022.

Unlike Netflix and other US-based streaming services, iQIYI isn’t facing a lot of competition. Of course, it does have to meet stringent regulations developed by the Chinese government, which has the potential to limit some of its operations. Those regulations can work for or against iQIYI, depending on the situation.

One of the most recent changes to Chinese law has capped actors’ pay, which now cannot exceed 40 percent of total production costs. This particular change means iQIYI will pay less for original content and content licensing, which means greater profit.

Overall, iQIYI [NASDAQ: IQ] is a promising opportunity to invest in a company poised for growth. The relatively low share price offsets some of the risk intrinsic to technology stock purchases.

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The author has no position in any of the stocks mentioned. Financhill has a disclosure policy. This post may contain affiliate links or links from our sponsors.