With the worsening coronavirus outbreak and concerns about a bull market growing long in the tooth, I recognize the temptation to be skeptical about stocks. As I’ve explained before, equities have a tendency of quickly overcoming contagious disease-related headwinds. That’s especially the case with strong bullish cycles, like we’re on right now. But if you’re still unconvinced, I recommend taking a look at iQiyi (NASDAQ:IQ) and IQ stock.
The streaming giant, which investors often refer to as the “Netflix (NASDAQ:NFLX) of China,” has a profound tailwind: the world’s second-largest economy is essentially on lockdown.
Because the coronavirus has spread rapidly – at time of writing, the Chinese government disclosed 31,161 cases and 636 deaths – the incentive to go out in public is gone. As things stand, there’s not much people can do but wait out the epidemic.
Logically, this translates to many boring hours sitting at home. This environment practically begs for IQ stock to move higher, which it has in recent sessions.
Better yet, even before this health crisis shuttered China, IQ stock was an easy buy. As you know, I base my investment decisions on megatrends and there are few bigger than video streaming.
In September of last year, iQiyi and competitors Youku and Tencent (OTCMKTS:TCEHY) reported monthly active user counts of 244 million, 206 million and 131 million, respectively. Though competition is fierce, iQiyi has distinguished itself by expanding overseas. Thanks to its strategic partnership with Malaysian satellite television operator Astro, iQiyi is the first true Chinese video streaming provider to offer substantive international services.
Also, keep in mind that while Netflix took 20 years to get 100 million paying subscribers, iQiyi did it in nine!
China Shutdown a Unique Catalyst for IQ Stock
One of the criticisms against iQiyi, though, is that management has prioritized robust growth over profitability. As many analysts have pointed out, net income losses continue to widen while long-term debt continues to rise. Contrast this dynamic to Netflix, which has long focused on sustainable growth.
However, one of the key differences between NFLX and IQ stock is their respective underlying markets. At a population size about four-times bigger than the U.S., iQiyi simply has a much more sizable addressable market.
But with fears over the coronavirus, the Chinese market has become even more addressable. In many ways, it’s a hostage market.
Prior to the outbreak, the international community welcomed Chinese tourists. Why? It’s all about the Benjamins. In 2013, international tourism expenditure of Chinese visitors was already high at nearly $129 billion. But in 2014, it skyrocketed to $234.7 billion. And by the end of 2018, this figure reached $277 billion. For perspective, that’s the GDP of Chile being spent on various countries throughout the world.
Now, those funds have basically evaporated for the receiving countries. Due to the need for precautionary measures, the international community has placed restrictions on travel to and from China. Some have even gone so far as to bar all visitors from Asian ports.
Of course, the money hasn’t literally evaporated. Instead, whatever funds that would have been spent on foreign travel is now sitting at home. Like I said earlier, streaming represents an easy, accessible entertainment option during the forced downtime. Hence, we have a minitrend developing within the context of a broader one.
Further, the coronavirus response enables iQiyi to balance its viewership allocation. Currently, most of its users come from first-tier cities. But lower-tier cities surprisingly offer viable conversion opportunities.
Chinese Streaming Market Not Unlike Our Own
One of the most powerful megatrends that I discuss is demographics. Combined with the technological revolution that is flourishing through innovations like 5G, demographics will play a huge role in what I term the Roaring 2020s.
It’s a similar situation in China. As with the U.S., streaming in China skews young. Most streaming users, or 38.4%, are between the ages of 25 to 34 years. Those include prime earning years, which implies further conversion opportunities for iQiyi as the populace ages.
But an interesting trend is that a sizable number of older people (ages 45 to 54 years) have also cut the cord. Therefore, the addressable market – coronavirus or not – is far more expansive and diverse in China than other regions.
Ultimately, the numbers overwhelmingly work in iQiyi’s favor. If you’re worried about the coronavirus, but still want to buy stocks, IQ is a compelling option.
Matthew McCall left Wall Street to actually help investors — by getting them into the world’s biggest, most revolutionary trends BEFORE anyone else. The power of being “first” gave Matt’s readers the chance to bank +2,438% in Stamps.com (STMP), +1,523% in Ulta Beauty (ULTA) and +1,044% in Tesla (TSLA), just to name a few. Click here to see what Matt has up his sleeve now. Matt does not directly own the aforementioned securities.