In the world of startups, there’s a certain mad lib language required for all new companies operating in emerging markets. Y’know … Yandex NV (NASDAQ:YNDX) is the Google of Russia … Alibaba (NYSE:BABA) is the Amazon of China … iQiyi, Inc. (NASDAQ:IQ) is the Netflix of China — maybe.
IQiyi is China’s largest online video-streaming service, with 500 million or so monthly users who spend around 6 billion hours on the service each month. It was spun off from search giant Baidu (NYSE:BIDU) in late March. Shares were priced at $18 per share, dropped initially and have since climbed to over $28. Writing about the company, Mashable dubbed China “the world’s hungriest streaming market.”
This week, though, iQiyi’s CEO said it doesn’t want to be the Netflix of China — it’d rather be Disney (NYSE:DIS).
The distinction is important, he said, because Netflix is more so about replicating its subscription model in new markets, while Disney is about creating a deep brand. IQiyi wants vertical expansion, as the South Morning China Post reported, not horizontal.
To be blunt, that difference doesn’t matter.
Comparing yourself to Disney is a nice aspiration, but the bottom line is that Disney is a deeply entrenched and versatile brand. Sure, iQiyi could build something similar, but it’s a long way off — 20 or 30 years — as the CEO himself said. Heck, Netflix probably wants to be like Disney, too!
The comparison with Netflix is more apt, regardless of the CEO’s opinion, because of iQiyi’s stage of life, if you will. IQ stock isn’t currently profitable but the company is supposed to grow sales by 35% from 2018 to 2019.
Just like Netflix, iQiyi is spending a good deal of money acquiring content. Investors love it … just like NFLX stock holders. On Wednesday, shares jumped double-digit following a bullish call from CITIC Securities (though it’s worth noting that the price target was $28, which IQ stock has already achieved).
And for a more direct connection, recall that Netflix scrapped plans to enter China on its own accord and instead inked a content licensing deal with iQiyi last year.
Of course, these comparisons — the Uber of X, the Google of Y — are always oversimplifications. That is precisely why I’m saying the nuance of Netflix versus Disney doesn’t really matter, and that the original comparison (if we have to pick one) is actually better. If you wanted, you could also compare IQ stock to AMZN, as both companies are beginning to marry its online service with some physical sales.
Earlier this month, South Morning China Post also reported that iQiyi is opening is opening on-demand movie theatres. “Instead of showing up at a certain time to view a certain movie, film buffs can now choose to book private on-demand cinemas by iQiyi to play their choice from the Beijing-based company’s library of titles,” reporter Men Jing wrote.
No matter how you slice it, one thing seems pretty clear: iQiyi definitely has big aspirations and big market it’s poised to dominate. I’d keep a close eye on IQ stock. Any pullback could be a buying opportunity.
As of this writing, Robert Martin did not hold a position in any of the aforementioned securities.
