I must say that I haven’t been too kind with iQiyi (NASDAQ:IQ), which most folks know as China’s Netflix (NASDAQ:NFLX). You would think that a company that is levered toward the world’s biggest market in anything would do well. A cursory look at the charts for IQ stock tells a different tale.
And while I’m not trying to pat myself on the back, I will say that recommending against buying iQiyi stock was a gamble. How many times have we seen embattled securities bounce back for absolutely ridiculous reasons? Despite my reservations about the company, IQ still has that China market in its pocket. That’s not something to take lightly.
That said, I also want to know what other people are thinking, especially those that have a different perspective. You don’t really understand your own argument until you understand your opponent’s thesis. Although I hardly consider our own Dana Blankenhorn an opponent, he did put forward a differing narrative on IQ stock.
Essentially, people have the completely wrong perspective regarding iQiyi stock. As I so cavalierly mentioned up top, IQ is the Netflix of China. But Blankenhorn takes issue with that comparison because it’s only accurate from a superficial angle. In reality, they’re two different animals.
Increasingly in American and presumably other western households, people sit down in front of the TV to stream their favorite programs. This behavior facilitates the binge-watching phenomenon that we’ve grown so accustomed to.
But in China, things are different. They don’t have time to sit on their easy chair like us lazy Americans. Instead, their consumption is mobile-centric, which specifically benefits iQiyi’s platform, and IQ stock.
It’s also a damn good argument.
Unique Chinese Consumerism Also Hurts IQ Stock
Working in the financial media space, I more or less have seen it all. Again, I’m not trying to toot my own horn, but I’m rarely intellectually stimulated with investment-related editorials.
Blankenhorn’s point, though, hit me right in the solar plexus. It made me rethink my own thoughts about iQiyi stock. I also looked at the charts again. While I was right to be bearish on shares, right now, the discount is mighty attractive.
So, have I changed my mind? I’m sorry to disappoint any ardent bulls of IQ stock, but I’m still cautious on the company longer-term.
Fundamental to Blankenhorn’s thesis is that iQiyi is uniquely positioned to serve the unique needs of Chinese consumers. The company’s target demographic is the young, upwardly mobile Chinese professional who grew up in an era of unprecedented prosperity. To quote Blankenhorn, they’re “working hard and must play hard as well.”
But this unique Chinese consumerism is a double-edged sword. China’s consumers have expectations to stream high-quality content. That arguably benefits IQ stock. But they also expect to do so for free. Obviously, that doesn’t help matters.
You know what? I’m not surprised one bit. Why should anyone be? For decades, China represented ground zero for content piracy. The number of copyright violations that have occurred is simply staggering.
In recent times, the Chinese government has cracked down on these content pirates and they’ve done a great job. However, because they did a great job, it patently shows you how deeply entrenched piracy is in China. This is a consumer culture that now expects certain things like media entertainment to be free of charge.
It’s going to take a while to overturn this mindset, which is why I’m still avoiding iQiyi stock.
Short-term Swing for iQiyi Stock Possible
Now, it’s not all bad news for IQ stock. What I’m proposing is a longer-term narrative. In the interim, it’s very possible that shares at least get a dead-cat bounce.
Clearly, the magnitude of volatility has subsided. The risk is currently more to those gambling that shares decline even further. It appears that strong support exists at the $18 level, where shares are roughly trading today.
If you have a short-term timeframe and don’t mind the choppiness, go for it. The front-face narrative for iQiyi stock that everyone focuses on — the Chinese Netflix — remains popular, albeit inaccurate to Blankenhorn’s point.
But if you’re thinking about holding this for the long-term, I’d back off and take a breather. There’s a reason why the streaming units of Alibaba (NYSE:BABA), Tencent (OTCMKTS:TCEHY), and Baidu (NASDAQ:BIDU) haven’t justified the hype. China has the numbers, but the numbers don’t want to pay.
As of this writing, Josh Enomoto did not hold a position in any of the aforementioned securities.