On Tuesday, Citi adjusted its stock price target for iQIYI (NASDAQ:IQ), a leading online entertainment service in China, to $3.60 from the previous target of $3.80. The firm continues to recommend a Buy rating on the stock despite the adjustment.
The change in the price target reflects a modest reduction in revenue expectations for the third quarter of 2024 (3Q24), particularly in the advertising segment, where a sequential quarterly decline of 9% is anticipated. This is attributed to soft brand advertising and challenging macroeconomic conditions experienced during the quarter.
Conversely, the membership revenue forecast remains relatively stable at an estimated RMB 4.38 billion, marking a modest 3% quarter-over-quarter decrease.
Citi has also revised its net profit estimate upwards for iQIYI's third quarter, citing lower content costs and disciplined sales and marketing (S&M) expenses as the company deals with competitive pressures and a weak macroeconomic environment. Moreover, gains from the appreciation of the Chinese yuan (RMB) during the quarter have been factored into the improved profit outlook.
Despite the upward revision in net profit estimates, Citi acknowledges the ongoing intense competition in the market, which contributes to a low visibility for future profits. The firm's revised price target is based on a 12 times price-to-earnings (P/E) multiple on the revised 2025E earnings per share, which remains unchanged.
While maintaining a positive outlook on the stock with a Buy rating, Citi suggests that iQIYI's share price may remain range-bound in the near term. The firm anticipates that the absence of significant positive catalysts could limit stock movement until further successful content launches are observed.
In other recent news, iQIYI, a leader in online video platforms, has been subject to several analyst revisions following a challenging financial quarter. The company reported a 4.7% decrease in its second quarter revenue, totaling CNY 7.44 billion, and an 81.3% decline in earnings per American depositary share to $0.07. This downturn was largely due to a 9.1% drop in revenue from iQIYI's core membership services, attributed to intense industry competition.
BofA Securities adjusted its outlook on iQIYI, lowering the price target to $4.30 from the previous $5.10, but maintained a Buy rating. The firm expressed caution about iQIYI's content pipeline for 2025, given the competitive landscape of the long-form video industry.
In contrast, CFRA downgraded iQIYI's rating from Buy to Hold due to the company's recent financial performance and competitive pressures.
JPMorgan also adjusted its price target for iQIYI to $2.50, maintaining a neutral stance. The firm is awaiting stronger evidence of macroeconomic support and sales execution improvements before changing its outlook.
Despite the challenges, iQIYI is planning strategic moves to diversify its revenue streams and improve operating efficiency, including the rollout of new content, expansion in overseas markets, and application of artificial intelligence to lower content costs. These strategies are expected to support a forecasted 6% revenue growth in 2025, according to CFRA's analysis.
InvestingPro Insights
Recent data from InvestingPro sheds additional light on iQIYI's financial position and market performance. The company's market capitalization stands at $2.31 billion, with a P/E ratio of 10.7, indicating a relatively low valuation compared to its earnings. This aligns with an InvestingPro Tip suggesting that iQIYI is "trading at a low earnings multiple."
Despite Citi's reduced price target, iQIYI has shown strong short-term performance, with a 14.76% price return over the past month. However, this comes after significant declines, as evidenced by the -28.7% return over the last three months and -44.08% over six months. These figures support another InvestingPro Tip noting that the "price has fallen significantly over the last three months."
The company's revenue for the last twelve months as of Q2 2024 was $4.28 billion, with a slight decline of 0.41% year-over-year. This modest revenue contraction aligns with Citi's concerns about soft advertising and challenging macroeconomic conditions.
For investors seeking a more comprehensive analysis, InvestingPro offers 13 additional tips for iQIYI, providing a deeper understanding of the company's financial health and market position.
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