Is iQiyi Really the Netflix of China, And Is It a Buy?

IQ stock - Is iQiyi Really the Netflix of China, And Is It a Buy?

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iQiyi (NASDAQ:IQ) has been both rewarding and frustrating for me. It was a name that we found early, allowing us to nab IQ stock in the low-$20s. A big move into the $30s felt overdone so we exited the name, only to watch it run past $45 a week or two later.

It’s impossible to consistently hit the highs and the lows in a stock and I know that. But still, that doesn’t mean a stock can’t frustrate someone. Anyway, maybe investors are now wondering whether iQiyi stock is a buy at current levels.

After its huge rise, IQ stock has come back to earth and has been basing in the $26 to $28 range. It’s looking a lot better from a technical perspective, and its fundamentals look pretty good too.

For those who aren’t completely familiar with the iQiyi service, think of it kind of like a combination of YouTube and Netflix. With both ad revenue and paid subscribers, IQ is experiencing strong growth, as it’s based in China. The technologically advanced country holds more than four times the U.S. population between its borders, with a count of almost 1.4 billion people.

iQiyi Subscriber Growth

Growth has been rapid with IQ stock and that’s what initially got me interested in the name. Digging through the prospectus of this recent IPO, I found that at year-end 2017, iQiyi had 50.8 million subs. That was up big from 30.2 million a year prior and just 10.7 million the year before.

In Q1, subs swelled to 60.1 million, 18% growth in just three months. Sheesh.

In Q2, that sequential growth slowed, as subs totaled 67.1 million but 11.6% quarter-on-quarter growth is nothing to shrug at. Further, consider that iQiyi grew its subs 75% year-over-year (YoY) for the quarter. That’s pretty darn good.

On the revenue front, sales jumped 42.5% YoY in Q2, which goes along with the impressive 48.8% growth from Q1. Some investors could make an argument about a slowdown from Q1 to Q2. But I don’t think that needs to be a concern for a company like IQ, given its large target market and impressive overall growth rate.

Valuing iQiyi Stock

Overall, analysts expect $3.61 billion in sales this year. That values IQ stock at about 5.4 times this year’s sales. No, that’s not cheap by any means, particularly for a company that is forecast to lose $1.23 per share this year and 78 cents a share in 2019.

Comparing it to Netflix may seem unfair, given that NFLX is profitable (albeit barely) and is forecast to have revenue of $15.8 billion. It has a dominant position in the U.S. and is expanding overseas. For Netflix though, even well off its highs, shares trade at about 10 times this year’s sales.

Also note that Baidu (NASDAQ:BIDU) — the Alphabet (NASDAQ:GOOGL, NASDAQ:GOOG) of China — is the majority owner of IQ. That can have some big-time benefits. Also consider that Netflix is not in China and has a licensing agreement with iQiyi for its content instead.

So while IQ stock isn’t profitable, I view its fundamentals in a positive light and don’t consider the valuation egregious.

Trading IQ Stock Price

chart of IQ stock price
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Source: Chart courtesy of

IQ stock price has been trading better lately. On June 20th, we asked if iQiyi stock had hit its ceiling. As it turns out, it was doing so as we spoke, and shareholders have endured several months of pain since. IQ stock was no Tilray (NASDAQ:TLRY), but its two-month run was impressive.

Now over its long-term downtrend mark (blue line), IQ stock is putting in a series of higher lows and lower highs. Whichever way this one breaks, it could gain steam in that direction.

On the downside, look for the backside of its previous downtrend to act as support. Currently that’s down near $24, but will likely be even lower by the time IQ potentially tests it. Also look for its recent lows between $24.25 and $26 to act as support. On the upside, look for resistance near $30, where current downtrend resistance (black line) and the 50-day moving average are.

Keep in mind, any bad news on China and U.S.-Chinese trade will likely weigh on Chinese equities. Also keep in mind that, so long as Baidu (NASDAQ:BIDU), (NASDAQ:JD), Alibaba (NYSE:BABA) and others are under pressure, IQ stock likely will too.

Also remember that iQiyi stock has a 125 million share lockup expiration coming on September 25th.

Bret Kenwell is the manager and author of Future Blue Chips and is on Twitter @BretKenwell. As of this writing, Bret Kenwell is long GOOGL. 

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