iQIYI Drops 7% As Streaming Subscriber Growth Slows Down

Shares of iQIYI Inc. plunged more than 7% in Monday’s extended market session as subscribers for the Chinese video streaming platform declined during the third quarter.

Nasdaq-listed iQIYI (IQ) reported that the number of total subscribing members fell to 104.8 million as of Sept. 30, from 105.8 million in the same period last year. During the reported quarter, 99.5% were paying subscribing members. Meanwhile, total revenue in the third quarter ended Sept. 30 fell 3% to RMB7.2 billion ($1.1 billion) year-on-year, but outperformed analysts’ expectations by $20 million. The company posted a net loss of RMB1.61 ($0.24) per ADS in the third quarter, beating the Street consensus by $0.17. The loss narrowed from the RMB5.04 per ADS in the same period in 2019.

“Our business performed fairly well in the third quarter and in-line with our overall expectation,” commented iQIYI CEO Yu Gong. “Despite the turbulence this year, we have leveraged a number of strategies, such as launching theatre-themed content and upgrading our membership portfolio. In the coming quarters, we may continue to see fluctuations in the number of subscribers, driven by the normalization of user behaviour and content pipeline.”

For the fourth quarter of 2020, iQIYI expects to generate total net sales of between RMB7.28 billion ($1.07 billion) and RMB7.73 billion ($1.14 billion), reflecting a 3% decrease to a 3% increase year-on-year.

IQ shares have served investors well, surging 23% over the past month and are now up 32% on a year-to-date basis. (See IQ stock analysis on TipRanks)

On the analyst front, Tigress Financial analyst Aaron Ju recently downgraded the stock’s rating to Hold from Buy and removed his $22.51 price target, saying the company’s current share price is in line with “fair value measurements,” with little opportunity for near-term share price outperformance.

“The high churn rate after the COVID-19 outbreak in China dragged down its total subscribers,” Ju wrote in a note to investors. “Business Performance trends turn to flat due to the intense competition and a lack of near-term growth drivers.”

For now, IQ, which is majority owned by Baidu Inc (BIDU), has recently received 2 Hold ratings from the Street, which add up to a Hold analyst consensus.