Iqiyi (NASDAQ: IQ), commonly referred to as the “Netflix of China,” has taken investors on quite the journey this year. Trade issues between the company’s home nation of China and the United States are partially responsible for the stock’s recent tumult. However, iQiyi is a growth stock with plenty of room for upward momentum in the months and years ahead.
This popular Chinese video provider has excellent growth across its primary segments. Membership is up more than 60 percent on a year-over-year basis. Advertising services continue to increase just under 45 percent per year. Aside from producing video content, the company has a segment for content distribution and even sells online games. All in all, iQiyi operates a business similar to the likes of Hulu. This comparison is a bit ironic as the business is commonly referred to as China’s Netflix. It is particularly interesting to note iQiyi offers a no-cost tier supported by advertisements. Customers also have the option of paying for a subscription to access exclusive and original video content.
iQiyi executives are on record as stating the company will expand its offerings to an additional 200 brand new programs in 2019 alone. The company plans on introducing a litany of new live streaming content, movies, animations, variety shows, comics and more. Current successful series such as Ido Producer and the Rap of China will be extended. The company will strive even harder to develop short dramas with a dozen episodes or less. This format has proven quite popular amongst iQiyi’s customer base. Finally, iQiyi will debut a new program designed with those use their smartphone squarely in mind.
When you find out iQiyi’s drama Story of Yanxi Palace has been streamed more than 15 billion times, it is difficult to conceive of the company’s limited range. Thanks to viral support through avenues such as the popular Chinese microblogging community on Weibo, iQiyi has achieved remarkable success.
The rub is that the company’s market is limited to mainland China. Though iQiyi has made some deals for its content to be used outside of China, it is unlikely the company’s business will extend beyond China any time soon.
A large part of iQiyi’s appeal from the perspective of an investor is its high-quality content. This Chinese version of Netflix has a slew of elite offerings that keep customers coming back for more. Several of these shows have gone viral throughout the nation. Furthermore, iQiyi has the highest percentage of time spent per viewer of all the competing streaming companies. Customers appear highly motivated to step up from the free tier to the ad-free exclusive content that costs a premium. iQiyi will continue to benefit as China’s population grows and matures. As long as its content does not disturb Chinese leadership, iQyii will cintinue to spearhead China’s streaming business.
At the moment, iQiyi has more than 560 million mobile monthly active users. Investors commonly use the acronym of MAU to refer to such users. Upwards of 70 million of iQiyi’s MAUs are paying subscribers. The company is especially proud of the fact that it has the highest time share spent by its viewers of all the streaming companies available in mainland China. All in all, iQiyi expects its viewers to boom by 20 percent when 2020 rolls around. If the company achieves this feat, it will control 40 percent of the nation’s mobile MAUs.
iQiyi has fallen from its highs thanks to profit taking and the market’s general downswing in October. The company is spending copious amounts of money on original content, setting the stage for a considerable profit down the line. However, iQiyi will like prove unprofitable for at least another few quarters. Add in the company’s market cap of a mere $16 billion and it is easy to see why so many are afraid to hop on board with iQiyi.
If iQiyi dips down toward $20 or lower, consider adding to your position or establishing a position. Let the market settle down in the weeks ahead before making a major move of any sort. In the end, iQiyi is a solid long-term play that will benefit your portfolio if you are patient.
Regards,
Ethan Warrick
Editor
Wealth Authority
