6 Stocks to Trade When the Markets Resume Tuesday >>> READ MORE

3 Reasons the iQiyi, Inc Rally Is Not Over

The company’s core business has quite a bit of momentum – and a long runway for growth

By Tom Taulli, InvestorPlace Writer & IPO Playbook Editor

iq stock

Source: Shutterstock

When iQiyi, Inc (NASDAQ:IQ) pulled off its IPO in late March, Wall Street was not impressed. Keep in mind that the general tech sector was fairly bearish. There were also worries about Chinese stocks — as well as the intense competitive environment — involving mega operators like Alibaba Holdings Ltd (NYSE:BABA) and Tencent Holding/ADR (OTCMKTS:TCEHY).

So on the debut of the public offering, IQ stock plunged nearly 14%.

Yet by early May the sentiment changed — and in a big way. Note that IQ stock has gone on to log a sizzling return of 124%. Yes, the IPO market can move on a dime, especially with tech deals.

A big part of the move has been the change in the narrative of IQ. Investors now see the company as China’s version of Netflix, Inc. (NASDAQ:NFLX), which has a market cap of $170 billion. IQ stock, on the other hand, has a value of $30 billion.

So what now for IQ stock? Is there still room on the upside? Well, I think so. Here’s a look at three key factors:

IQ Stock Advantage No. 1 – Secular Trends

iQiyi would probably have a tough time building a truly global platform. But then again, China should be big enough to provide growth for years to come. There should also be opportunities in other parts of Asia.

As for China, though, the online entertainment industry is one of the hottest in the country. iResearch Report estimates that the segment has seen spending go from RMB50.8 billion in 2012 to RMB156.9 billion in 2016. By 2022, the amount is forecasted to hit a whopping RMB688.4 billion. Of course, the key driver is video.

But this is not just about user-generated content. According to the iQiyi IPO prospectus: “Internet users in China are increasingly focused on the quality and originality of video content and are willing to pay for premium content.”

No doubt, this plays to the strengths of the company.

IQ Stock Advantage No. 2 – Video Content Powerhouse

Over the years, iQiyi has invested substantial amounts into creating original content. A big help has been that the company has been a part of Baidu Inc (ADR)(NASDAQ:BIDU). In other words, iQiyi had the benefits of access to major resources and distribution — BIDU still has a large equity stake in the company post-IPO.

But the company has also been able to build the right teams to create compelling content -– which is far from easy to do. Keep in mind that last year iQiyi had five of the top 10 original Internet variety shows and six of the top 10 original dramas.

And the numbers are huge. For example, when iQiyi released The Lost Tomb, it attracted over 100 million views within 24 hours.

But the company has also been smart with its technology. To this end, it has leveraged artificial intelligence and deep learning to better target content offerings.

IQ Stock Advantage No. 3 – Growth

The latest quarter showed a nice pick-up in the revenue growth of iQiyi. Total revenues jumped by 57% to $776.6 million. Consider that the company’s business model includes two main sources — advertising and membership services. Both produced standout results in the quarter.

Granted, the growth is likely to be choppy (hey, this has been the case with NFLX too). For the current quarter, the company is forecasting the top line to range from 42% to 47%.

This is still heady growth. Besides, when it comes to a company like iQiyi, the real play is for the long-term. And for now, it does look particularly bright.

Tom Taulli is the author of High-Profit IPO StrategiesAll About Commodities and All About Short SellingFollow him on Twitter at @ttaulli. As of this writing, he did not hold a position in any of the aforementioned securities.

Article printed from InvestorPlace Media, https://investorplace.com/2018/06/3-reasons-the-iqiyi-inc-iq-stock-rally-is-not-over/.

©2019 InvestorPlace Media, LLC