On Monday, CFRA lowered its price target on shares of iQIYI (NASDAQ:IQ), a company primarily known for its streaming services, from $2.50 to $2.30, while maintaining a Hold rating on the stock. Currently trading at $2.14, iQIYI has seen its stock price decline by over 55% year-to-date. According to InvestingPro data, eight analysts have recently revised their earnings expectations downward. The adjustment follows iQIYI's reported financial results for the third quarter of 2024, which showed a decline in both revenue and earnings.
iQIYI's revenue decreased by 9.6% year-over-year in the third quarter of 2024, totaling CNY 7.25 billion. This decline was attributed to a decrease in membership revenue by 12.9% and a significant 20.1% drop in advertisement revenue. However, content and other revenue streams saw an increase of 13.4%. The company's net margin also fell by 2.8 percentage points, leading to a 52% decrease in earnings per American depositary share (EPADS) to CNY 0.24.
Despite these challenges, InvestingPro's analysis indicates the stock is trading at an attractive earnings multiple of 10.6x, suggesting potential value for investors. Get access to 10+ additional ProTips and comprehensive financial analysis with InvestingPro.
Despite the downturn, CFRA has maintained their forecast of a 21% fall in iQIYI's 2024 EPADS to CNY 1.60. Looking ahead to 2025, the firm expects iQIYI's revenue to grow by 6%, driven by a projected pick-up in membership revenue due to new content rollouts and the company's efforts to diversify its revenue streams beyond traditional memberships and advertisements.
CFRA also anticipates that iQIYI will see improvements in average revenue per membership and reduced content costs, potentially due to scale efficiency and the application of artificial intelligence. However, the firm cautions that competitive pressures may continue to challenge margin prospects. Consequently, CFRA has revised its 2025 EPADS forecast for iQIYI downward to CNY 1.90 from CNY 2.70.
In other recent news, iQIYI, the Chinese online entertainment service, has been the subject of recent analyst attentions. BofA Securities lowered its price target for iQIYI to $3.60, maintaining a buy rating, while Jefferies reduced its target to $3.00, also maintaining a buy rating. Both adjustments followed iQIYI's third-quarter results, which aligned with expectations, including a one-off item contributing to a net profit beat.
iQIYI reported a 10% year-over-year decline in total revenue, amounting to RMB 7.2 billion. However, the company maintained a positive operating cash flow for the 10th consecutive quarter. Membership services revenue saw a 13% decrease, while advertising revenue fell by 20%. However, distribution revenue rose by 52%, offsetting some of the declines.
The company has indicated plans to adapt its content strategy to market changes, including launching short-drama content and enhancing its IQ and IQ Light versions. iQIYI's content supply in the near term will primarily consist of third-party or exclusive content, with intentions to explore first-party models in the future. Despite near-term business restructuring, iQIYI reaffirmed its commitment to long-term profit growth through cost and operational optimization.
These recent developments also include strategic shifts in content strategy, with a focus on mini and short dramas, and the introduction of two distinct app experiences. iQIYI's overseas expansion efforts have led to membership revenue growth exceeding 40% in regions such as Hong Kong, the UK, Brazil, and Australia.
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