Young people who have grown up communicating through texts and Facebook posts want to get their stock pitches short and sweet. Combining the name of a recent winner with a fast-growing market is one way to catch their attention. That’s a big reason why iQiyi, Inc. (NASDAQ:IQ), widely billed as “the Netflix (NASDAQ:NFLX) of China,” is soaring.
Few if any recent initial public offerings have attracted such intense interest from investors. The streaming video service debuted at $18 about three months ago and has more than doubled already.
Many younger buyers became aware of the company and its prospects through the stock trading app Robinhood. The median age of the app’s users is a lot younger than customers of traditional brokerage firms. As of June 12, more than 30,000 Robinhood users had snapped up the stock.
The Netflix of China
The service has actually been around for almost a decade, but has attracted significant interest since being spun off from the huge Chinese search firm Baidu. IQiyi says it has more than 60 million subscribers, with new ones being added at a torrid rate.
Netflix, the service to which iQiyi is always compared, has about 100 million users around the world, but it gets most of its revenue from more mature markets like the United States and Britain. Many Chinese are only now acquiring the disposable income needed to make a streaming service a viable option.
Some observers think Chinese government regulation will prevent Netflix from expanding rapidly in that market, leaving room for iQiyi to grow. With President Trump constantly threatening trade wars against both friends and foes, don’t expect those barriers to come down any time soon. That’s more good news for IQ stock.
Many investment firms have issued positive reviews on the company. So even if the iQiyi fad cools among millennials, some old-timers will still be around to keep the stock price aloft.
The company seems to be in that phase where any news is enough to set off another rally. For example, iQiyi recently introduced a distinct channel for kid-friendly programming, a fairly standard move in the industry. This sent the stock price noticeably higher even before any serious data was available on how many customers the new service was attracting.
Like Netflix, iQiyi offers a mix of original programming and recycled stuff. The flood of new revenue has enabled management to rapidly expand the latter operation. One original film, Blue Amber, has been winning critical acclaim in Asia.
The exciting possibility for any streaming service, on any continent, is the chance that it can use its data — exactly who is watching its programming, even which parts of the content were more popular than others — to develop themselves into entertainment powerhouses at both the production and distribution levels.
Bottom Line on IQ Stock
IQiyi’s ultimate rival may not be Netflix, but Walt Disney Co (NYSE:DIS), Time Warner and the other Hollywood majors that derive a lot of their profits from the Asian market.
Does that mean the stock is worth buying today? Probably not.
For one thing, it’s never a good idea to buy a stock right after it has just skyrocketed in value. Even the best firms will stumble, and there is still a lot we don’t know about iQiyi’s overall strategy. Even a small bit of bad news could prick the balloon.
For another thing, we don’t really know yet how millennials will react to a bear market. Many were not yet old enough to be investing during the 2008-09 collapse, and the stock market has been on a fairly steady upward trajectory ever since. When the bear market comes — and it will — will they panic? We may find out soon.
So iQiyi seems to be a long-term winner, but it might be best to hold off and see whether this fad will be more enduring than the mood ring (millennials can Google that).
As of this writing, Thomas Scarlett did not hold a position in any of the aforementioned securities.