IQIYI (China) – IQ:US
BMO Investorline: “IQIYI is a leading streaming
video-on-demand company in China that generates revenue through a mostly
subscription basis and has about 100 million paying subscribers and 500 million
monthly average users on its platform. The platform also provides user-generated
content in long-form videos free of charge to nonpaying users, monetized
through video-brand ads and performance-based ads. The company self-produces
much of the subscription content and also generates revenue through content
distribution, gaming, and IP licensing. Iqiyi competes in a crowded industry
with Tencent Video, Alibaba's Youku, ByteDance's MangoTV, and Tencent-backed
Bilibili. The company is 45.5% and 5.1% owned by Baidu and Xiaomi,
respectively. Baidu also held 89.3% of the voting
power as of end-February 2023.”
1.
Statistics from various sources as of 2024-12-03:
Current price: $2.28
USD
PE: 6.34
Forward PE: 2.51
52 Week Range: $1.89
USD - $5.80 USD
Price to Book (TTM):
1.15
Profit margin: 5.36%
Return on Equity
(ttm): 14.31%
Total Cash (mrq): 7.04B
CNY
Total Debt (mrq):16.56B
CNY
Current Ratio (mrq): 0.53
Book Value Per Share
(mrq): $12.60 CNY
Operating Cash Flow
(ttm): $2.81B CNY
----------
2.
Share price estimates as of 2024-12-03:
Yahoo’s 1-yr target:
$19.09 USD
Morningstar’s fair
value: $2.00 USD
Refinitiv target:
$3.33 USD (H $5.34 USD – M $3.21 USD – L $2.27 USD) with consensus rating BUY.
TipRanks ratings:
$2.86 USD
----------
3. Quarterly in CNY from Refinitiv as of 2024-12-03:
Revenue: $7.25B CNY
Gross Profit: $1.6B
CNY
Operating income:
$238.92M CNY
Net income bf tax:
$247.31M CNY
Net income after tax:
$235.83M CNY
Net income available
to common share: $229.41M CNY
Diluted EPS: 0.24
---------------------------------
4.
Valuation measures and statistics from
Yahoo Finance
Valuation
Measures
|
Current |
9/30/2024 |
6/30/2024 |
3/31/2024 |
12/31/2023 |
9/30/2023 |
|
|
Market Cap |
2.09B |
2.74B |
3.52B |
4.06B |
4.67B |
4.53B |
|
Enterprise Value |
3.40B |
4.10B |
4.85B |
5.43B |
6.09B |
5.97B |
|
Trailing P/E |
9.02 |
11.46 |
13.14 |
15.60 |
38.12 |
38.03 |
|
Forward P/E |
7.11 |
8.94 |
7.80 |
2.21 |
9.69 |
10.96 |
|
PEG Ratio (5yr expected) |
1.56 |
1.31 |
0.46 |
0.13 |
0.36 |
0.34 |
|
Price/Sales |
0.50 |
0.63 |
0.83 |
0.94 |
1.02 |
1.02 |
|
Price/Book |
1.15 |
1.48 |
2.01 |
2.43 |
2.96 |
3.11 |
|
Enterprise Value/Revenue |
0.79 |
0.93 |
1.12 |
1.23 |
1.39 |
1.40 |
|
Enterprise Value/EBITDA |
8.41 |
9.83 |
11.04 |
2.28 |
22.94 |
23.07 |
------------------------------------------------
5.
Personal notes as of 2024-12-03
IQYIY app is available on smart phone. By looking at the app design, I
found that it was easy to follow and good flow.
There are a lot of movies in many languages. I think, it has more movies
listed than Netflix.
The monthly fee is CA$8.99/month or CA$ 89.99/year. New member special
is $1.99 for the first month.
The current economy of China is not good. It should be back from low
growth as the economic cycle kicked in another growth wave. The share price of
IQIYI would be appreciated by that time.
The PE and P/B ratio is going in downward trend,
which is a good sign. The PEG ratio is not
good.
Overall this should be a good stock to “bet” on, but you should not make
it a major portion of your portfolio, e.g. less than 5% of your portfolio.
6.
From Morningstar report:
Analyst Note Kai Wang, CFA, Senior Equity Analyst, 22 Nov 2024
We lower our fair value estimate by 33% for Iqiyi to
$2.00 per share from $3.00 after it reported third quarter 2024 revenue of CNY
7.2 billion, which reflected a 10% decline year on year, but was in line with
our expectation. However, our valuation revision reflects company guidance for
a 14% revenue decline year on year next quarter, which was worse than our
forecast as we had anticipated the bottom this quarter. We believe the guidance
reflects the long-term challenges for Iqiyi to return to subscriber growth
without sacrificing profitability from heavy content costs. We believe
subscribers have been gradually leaving the platform and estimate it is now
down to 89 million from 100 million a year ago. We think Iqiyi is prioritizing
profitability given that its balance sheet still has CNY 9 billion of net debt accumulated
from heavy spending on content. However, its shift toward low-cost content
appears to be souring due to user experience, as suggested by declines in
membership and advertising revenue.
Previously, Iqiyi was expecting the third quarter to
be its bottom as it anticipated a recovery in the fourth quarter. However,
Iqiyi expects fourth-quarter revenue to now decline 14% year on year with lower
revenue across all segments. We expect membership revenue to decrease 14%,
advertising to drop 17%, content distribution to be down 20%, and other revenue
to fall 9%. Given the poor outlook, we now have doubts that Iqiyi can ever
recover or see subscriber growth given competition from other media platforms,
or whether attracting users will again require heavy spending on content, which
hampers Iqiyi ’ s ability to repay its debt. Management indicated that it is
revamping its strategy and ecosystem to include more short-form videos,
diversifying its content, and other improvements to improve customer
experience. However, we remain skeptical and would like to see signs of
stabilization and subscriber recovery before recommending a long position for
Iqiyi.
Business Strategy & Outlook Kai Wang, CFA, Senior
Equity Analyst, 23 Aug 2024
We are encouraged that Iqiyi has been successful at
turning around its business to generate high single-digit operating margins,
which are a significant improvement from a 30% operating loss margin since its
IPO in 2018. We expect Iqiyi to maintain profitability in the near term because
of expectations of lower content costs that are 50%-60% of sales, rather than
the 70%-80% level prior to 2022. However, we forecast that subscription prices
and memberships will grow at only low-single-digit levels, given our view that
Iqiyi will have challenges in retaining customers on a consistent basis and is
vulnerable to switching costs and churn.
However, we do not believe the issue is unique to
Iqiyi. We believe that other companies operating in the streaming
video-on-demand industry in China will have a challenging time with widening
their respective customer bases. We don't believe they have enough intangible
assets on their platforms in the form of legacy franchises or characters (such
as the likes of Disney) that will add enough value to incentivize the user to
choose one platform over another. From second-quarter 2019 to second-quarter 2023,
Iqiyi subscriptions grew to only 111 million members from 101 million despite
elevated content costs. This leads us to believe that the quantity of content
on the platform does not necessarily lead to customer growth and highlights the
growth challenges of the platform. Despite expectations of profitability in the
near term, concerns remain that content costs will increase sharply again to incentivize
subscriptions should competition begin to intensify.
We believe that even if Iqiyi were able to see
short-term spikes in membership, its no-commitment business model allows users
to cancel memberships, thereby exacerbating long-term uncertainty on its long-term
subscription growth. This was evident in first-quarter 2023, when memberships
spiked to 128 million because of a blockbuster drama, but declined to 111
million next quarter as the drama series wound down. Since then, membership
levels are likely below 100 million as of the second quarter of 2024.
Bulls Say Kai Wang, CFA, Senior Equity Analyst, 22 Nov 2024
·
Recent profitability suggest Iqiyi may
have turned a corner and can maintain profitability despite slow membership
growth.
·
Iqiyi remains a top-two competitor in
terms of subscribership in the streaming video-on-demand industry and may
benefit from consolidation.
·
The company saw brief success with
blockbuster dramas in the past and may be able to replicate the blueprint in
the long term.
Bears Say Kai Wang, CFA, Senior Equity Analyst, 22 Nov 2024
·
Lack of differentiation in platform
content and saturation of other streaming platforms may hamper growth efforts.
·
Competition may intensify in the long term
as membership growth among other platforms will be a challenge within the
overall industry.
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