2. iQIYI, Inc. (NASDAQ: IQ)
Number of Hedge Fund Holders: 15
iQIYI, Inc. (NASDAQ: IQ) is an entertainment company based in China that provides online video entertainment services in China. Apart from online entertainment videos the company also offers online games, literature, and animations. The company’s platform combines technology with creative talent to foster an innovative environment to produce blockbuster content.
iQIYI, Inc. (NASDAQ: IQ) distinguishes itself from the online entertainment industry by its AI-powered leading technology entertainment platform. With an in-house studio spearheading the content production, the company is home to some acclaimed drama series and show franchises. The company also offers online advertisement and content distribution services and operates iQIYI Show, a live broadcasting platform that lets viewers follow their favorite TV hosts in real time.
iQIYI Inc. (NASDAQ: IQ) kicked off the year 2024 with a strong first quarter, the company reported a net income of RMB655.3 million grew 6% compared to RMB618.1 million in the same period last year. The growth was driven by a 5% YoY reduction in the cost of revenue and outperformance in key service sectors. For instance, Online advertising services revenue increased 6% YoY and reached RMB1.5 billion driven by the growth of the performance-based advertising business.
In addition, the company had a robust growth of 27% YoY in the content distribution business hitting a historical high by reaching RMB928 million primarily driven by the distribution of several key titles. These figures illustrate the content creation capabilities of iQIYI to produce quality content that is in demand by television stations and viewers.
For instance, last year the company aired a drama called “The Knockout” a gritty crime thriller series about a cop that proved to be a blockbuster and gained 10.79 billion views on the internet. Notably, in the drama category, iQIYI has held the number one position in terms of viewership for 9 straight quarters.
Furthermore, Yu Gong said in the earnings call, that the monthly average revenue per member (ARM) growth reached a new high which marks the sixth consecutive quarter of sequential growth driven by improved operations, enhanced membership offers, and rich content offerings.
In addition, the ad business is flourishing as almost half of the revenue stems from content-targeted ads. For example, the drama “Always on the Move” reached exceptional ad sales performance. Similarly, a show debuting in 2023 named “ Become a Farmer” has seen a notable revenue growth of 80% in ads.
Despite the improvement in sales performance of core segments and a YoY reduction in expenses, the company’s overall revenue decreased by 5% year-over-year. The reason is a fall in membership revenue of RMB4.8 billion down by 13% compared to last year was due to the high base effects created last year with the release of a big hit “ The Knockout”. Moreover, online viewership was reduced partially owing to the surge in travel and offline activities during the Chinese New Year holidays.
Furthermore, the company stated that ARM’s monthly business is growing, though the number of platform users is not mentioned in the earnings call. Don Youqiao, senior vice president of the membership business explained that the decision not to release the number of users was made after careful deliberations and implied that these were neither objective nor a complete measure of business dynamics. He noted that a famous streaming service, Netflix similarly decided to not release the subscriber data.
Netflix (NASDAQ: NFLX) announced that it will stop releasing the subscriber number from the first quarter of 2025, and planned to focus on operating income and revenue as metrics of performance. However, this reasoning failed to convince investors, and the company’s share price fell on concerns that growth might have slowed down. Similarly, iQIYI’s decision may have an impact on share price, if the management fails to convince the investors.
The logical explanation for an increase in revenue per subscriber and a decreasing membership income could be a possible drop in membership numbers. The popularity of dramas does impact the number of viewership, for instance, the success of “The Knockout” series early last year increased the subscriber’s number to 129 million from 111.6 million in the fourth quarter of 2022. Although the company produced good dramas later on but none could gain the same popularity resulting in the drop of membership to 100.3 million in Q4 2023.
According to the Insider Monkey database, 15 hedge funds held stakes in iQIYI Inc. (NASDAQ: IQ), and Farralon Capital has the highest stakes which are worth $161.37 million.
