On Thursday, Morgan Stanley (NYSE:MS) analysts issued an update on iQIYI shares (NASDAQ:IQ), reducing the price target from $2.40 to $2.20, while maintaining an Equalweight rating on the stock. The adjustment follows their projection of a revenue decline and potential challenges in the company's subscription growth. According to InvestingPro data, eight analysts have recently revised their earnings estimates downward, with the stock currently trading at $1.87, near its 52-week low of $1.82.
The analysts anticipate a 14% year-over-year decline in total revenue and a 9% quarter-over-quarter decrease. Membership revenue is expected to fall by 15% year-over-year and 6% quarter-over-quarter. They also predict a significant drop in non-GAAP operating profit by 56% year-over-year, albeit with a 10% improvement from the previous quarter.
Furthermore, non-GAAP net profit is expected to turn negative, influenced by foreign exchange losses. Despite these challenges, InvestingPro analysis shows the stock trading at an attractive P/E ratio of 10.92x with a strong free cash flow yield of 16%.
In their report, Morgan Stanley analysts noted, "We expect total revenue to decline 14% YoY or -9% QoQ, with membership revenue -15% yoy (-6% QoQ). Non-GAAP operating profit estimate is -56% yoy (+10% QoQ). Non-GAAP net profit may turn negative on FX losses. Remain EW."
The analysts also revised their revenue estimates for 2025-2026 downwards by 2-3%, citing the time needed for iQIYI to increase subscriptions. Additionally, the forecasts for non-GAAP operating and net profit for the same period have been reduced by 3-4% and 6-8%, respectively. InvestingPro subscribers can access 13 additional key insights and a comprehensive Pro Research Report, providing deeper analysis of iQIYI's valuation and growth prospects.
The new price target of $2.20 is based on an 8x multiple of the estimated 2025 earnings per share (P/E). The analysts explained the rationale behind the new target, stating, "Our revised PT of US$2.20 is derived using an 8x 2025e P/E multiple." This suggests a cautious outlook for iQIYI's financial performance over the next few years.
In other recent news, iQIY has seen several adjustments in its stock price target by various analyst firms. US Tiger Securities revised iQIYI's stock price target to $2.50 while maintaining a Hold rating. The firm also recalibrated its projections for iQIYI's fourth-quarter earnings, downgrading its forecast for membership revenue but increasing the estimate for advertising revenue.
Citi analysts, led by Alicia Yap, revised the price target for iQIYI shares to $2.80, maintaining a Buy rating. They noted the company's strong performance in the fourth quarter of 2024 and maintained their revenue estimate while slightly increasing the adjusted operating profit.
CFRA lowered its price target on shares of iQIYI to $2.30, projecting slower growth and reduced margins. Despite a decline in revenue and earnings, CFRA maintains a forecast of a 21% fall in iQIYI's 2024 earnings per American depositary share (EPADS) and expects a 6% growth in revenue in 2025.
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