The Chinese streaming company iQiyi (NASDAQ:IQ) has faced a number of challenges since going public nearly a year and a half ago. The company offers both free and paid streaming service. Although it’s often compared to Netflix (NASDAQ:NFLX), iQiyi is a very different company.
Of course, the comparison to Netflix has seemed much less relevant over the past year. Shares of IQ continue to trail their former high from a year ago. This has caused investors to question the company’s long-term profitability.
However, there’s still plenty to get excited about when it comes to IQ. You just have to take the good with the bad, weighing the two using your own unique investing thesis.
IQ Stock: The Good and the Bad
A year ago, IQ stock was trading for more than $33 a share but as of Monday, the stock opened at $19.65. Is it all downhill from here or does this just present a good buying opportunity? Here are a few things you should know before investing.
The company has huge growth potential: Make no mistake, iQiyi has huge growth potential in the coming years. The company has 100 million streaming subscribers and China’s streaming market is growing at a very fast pace. IQiyi offers both paid and free services, but more than 98% are paying customers. And the company plans to expand into international markets. According to IQ’s founder and CEO Tim Yu Gong, there are roughly 60 million “Chinese expats” living in more than 200 countries around the world. iQiyi believes this is an opportunity to expand globally and fill a need for Chinese customers looking for a streaming service in their native language.
iQiyi has differentiated itself from Netflix: Although often compared to Netflix, iQiyi has a very different business model. Netflix only offers streaming services but only 43% of IQ’s first-quarter revenue came from its paid subscribers. And the company offers different tiers to its subscription model. The company also generates revenue from online advertising. And it also makes money from offering video games and content merchandising based on its original programs.
Long-term challenges could stunt the company’s growth: The biggest challenge iQiyi will have to overcome is China’s slowing economy. People don’t tend to spend money on things like movies when the economy isn’t doing as well. Of course, the demand for streaming services may still be there but iQiyi does have a number of competitors to deal with. It is ranked second for online video subscription in China, coming in second to Tencent (OTCMKTS:TCHEY) Video. The video service Youku, which is owned by Alibaba (NASDAQ:BABA), comes in third. IQ’s growth rate decelerated by more than 40% during the first quarter of 2019. And increasingly, businesses in China are holding back on ad spending which has the potential to hurt IQ’s business as well.
The Bottom Line on IQ Stock
There are ways iQiyi can improve its monetization efforts and minimize costs over time. The company plans to focus on movies for the next two to three years and utilize AI to streamline its costs and effort. And the company is outpacing Alibaba’s Youku in terms of growth.
But it may be better to take a wait-and-see approach when it comes it IQ stock. Alibaba is a multi-billion dollar company that has dominated dozens of industries. Meanwhile, there are just too many unknown variables when it comes to iQiyi.
As of this writing, Jamie Johnson did not hold a position in any of the aforementioned securities.