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Analysts Stay Bullish On iQiyi After Q3 Print, But Investors Unhappy With Lower Ad Revenue

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Analysts Stay Bullish On iQiyi After Q3 Print, But Investors Unhappy With Lower Ad Revenue
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Chinese online video platform IQIYI Inc (NASDAQ: IQ), also known as the Netflix, Inc. (NASDAQ: NFLX) of China, reported Tuesday after the close with roughly in-line Q3 results.

Investors did not take kindly to the fact that the company faced pressure on its ad revenue.

The Analysts

Jefferies analyst Karen Chan has a Buy rating and $33 price target for the Nasdaq-listed shares of iQiyi.

China Renaissance Securities analyst Ella Ji maintained a Buy rating and lowered the price target from $31 to $28.

Credit Suisse upgraded its rating on iQiyi from Neutral to Outperform.

Ad Revenue A Sore Spot

The streaming service's net revenue rose 48 percent year-over-year, but ad revenue fell, Jefferies' Chan said in a Tuesday note.

The net loss, on a non-GAAP basis, widened from 1 billion yuan to 2.9 billion yuan, but the bottom-line result would have been in-line excluding a 593-million-yuan forex loss, the analyst said. 

The Q4 revenue guidance of 6.48-6.75 billion yuan surrounds the consensus estimate, Chan said. 

The 4-percent drop in ad revenue was due to the World Cup's impact and a tighter ad budget due to regulatory headwinds, according to Jefferies. 

Paying subscriber net adds re-accelerated to 13.5 million, Chan said. Membership revenue — which accounted for 41 percent of iQiyi's total net revenue — came in at 2.8 billion yuan compared to 2.4 billion yuan in ad revenue, accounting for 35 percent of the total.

Content distribution revenue surged 220 percent to 884 million yuan, according to Jefferies. 

A Mixed Quarter

Robust subscriber members on the back of strong exclusive content and a positive Q4 and 2019 outlook were tempered by surprisingly weak ad revenue, making Q3 a mixed quarter for iQiyi, China Renaissance's Ji said in a Wednesday note.

The company expects the ad business to return to positive growth next quarter, the analyst said. 

Ji estimates 12-percent year-over-year growth in ad revenue in Q4 and 18 percent in 2019.

"Management is seeing signs of softness in content acquisition prices in the current market environment, which we expect will reflect in its P&L in [the second half of 2019." 

China Renaissance lowered its Q4 and 2019 ad revenue growth estimates by 10 and 13 percent, respectively. The sell-side firm expects this to be offset by higher revenue expectations in other businesses. 

The Price Action

U.S.-traded shares of iQiyi were slipping 11.89 percent to $19.56 at the time of publication Wednesday. 

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Latest Ratings for IQ

DateFirmActionFromTo
Dec 2018HSBCInitiates Coverage OnHold
Oct 2018Credit SuisseUpgradesNeutralOutperform
Oct 2018JefferiesInitiates Coverage OnBuy

View More Analyst Ratings for IQ
View the Latest Analyst Ratings

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