Caixin
Feb 19, 2021 06:29 PM
DAILY CHART

Charts of the Day: iQiyi Brings Bottom Line Into Focus

Profits over eyeballs.

That’s the latest message coming from iQiyi Inc., one of China’s leading online video sites, as it searches for elusive profits in the highly competitive space for entertainment services that are rapidly overtaking traditional TV.

The company’s subscriber base fell by 5% last year and its revenue eked out just a tiny gain, as it moved the focus to its bottom line, according to its latest quarterly report released on Wednesday. With spending under control, the company’s loss narrowed by about a third to 7 billion yuan ($1.1 billion) for the year compared with 2019. It helped to pare its losses by roping in spending on programming and other content, its biggest cost, which dropped by 6% last year to 20.9 billion yuan. 

COTD Iqiyi charts- 1

“In 2021, we will continue to provide a more diversified portfolio of high-quality content to our users and enhance the perceived value of our paying subscribers,” CEO Gong Yu said in a statement accompanying the results. “This, in our view, should help to revive the growth of our subscribers and revenue amid the recovering macro environment.”

iQiyi is controlled by online search giant Baidu Inc. Its two main rivals are also backed by internet giants: Youku, owned by Alibaba Group Holding Ltd., and the video service owned by gaming giant Tencent Holdings Ltd. Only iQiyi discloses its quarterly financial performance, though its two big rivals are believed to be losing money as well.

COTD Iqiyi charts-2

Investors have blown hot-and-cold toward iQiyi since its New York listing in early 2018. The company’s shares initially doubled on enthusiasm about its prospects, after it released a prospectus showing it had turned a small profit in 2017. But interest has waned as it slipped back into red for the next three years. The stock now trading about 40% above its IPO price — a relatively mild gain when compared with much larger increases by other major Chinese tech firms over that time.

The company is expected to continue paring its losses, with the average forecast of analysts polled by Yahoo Finance predicting a halving of the loss this year from 2020, and again halving in 2022. Some analysts even predict the company could finally reach its goal of profitability in 2022.

Investors may also be excited after Reuters reported in November that Baidu had been in separate talks with both Alibaba and Tencent earlier to sell them its ownership of a majority of iQiyi’s shares. Such a sale would represent a major consolidation that observers believe is needed for the industry’s long-term sustainability.

COTD Iqiyi charts-3

But the talks ultimately failed because neither suitor wanted to pay the premium being sought by Baidu, which would have valued iQiyi at around $20 billion, according to the Reuters report. Following a recent rally that has seen iQiyi shares jump nearly 50% since late December, the company is now valued at about $19 billion, or just under the asking price that Baidu was reportedly seeking.

Among the three major players, iQiyi has been the most aggressive about expanding outside China. CEO Gong was quoted in last 2019 saying the company aims to make paying subscribers outside China account for half of the company’s total within the next five years. And last year its overseas business chief said iQiyi was in the process of establishing local offices in a number of Southeast Asian countries including the Philippines, Malaysia, Indonesia and Thailand.

Contact reporter Yang Ge (geyang@caixin.com)

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