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Why Shares of iQiyi Inc. Surged Again Today

By Timothy Green - May 10, 2018 at 4:58PM

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iQiyi's first earnings report, an analyst buy rating, and a successful new membership program are giving investors plenty of reasons to bid up the stock.

What happened

Shares of Chinese online entertainment company iQiyi Inc. (IQ 1.03%) jumped on Thursday. There were no significant new developments, but the stock still may be benefiting from positive analyst commentary it received on Tuesday and an announcement of encouraging early results from a joint membership program with on Wednesday. iQiyi stock was up about 10% at 3:50 p.m. EDT.

So what

Coverage of iQiyi was initiated at Goldman Sachs on Tuesday. Goldman rated the stock a buy, slapping on a $23 price target that's 41% higher than Monday's closing price. On Wednesday, iQiyi disclosed that a new joint membership program with e-commerce company had racked up more than 1 million users since it launched on April 27.

A rising stock chart.

Image source: Getty Images.

These positive developments came soon after the company's first quarterly report since going public. iQiyi reported 57% year-over-year revenue growth in local currency after adjusting for a change in accounting standards for the first quarter, with all parts of the business growing at robust rates. The two biggest contributors, membership and online advertising, grew by 67% and 52%, respectively.

After a few strong days for the stock, it's less than $3 away from Goldman's price target.

Now what

iQiyi is growing at a blistering pace. The company is losing money by the boatload, though, posting an operating loss of RMB1.06 billion during the first quarter. That's equivalent to about $169 million compared to revenue of $777 million. Notably, cost of revenue was just about equal to revenue. Obviously, that's not sustainable in the long run.

The company is clearly hoping that growth will eventually fix the bottom line. Investors don't seem to mind the losses, pushing the stock to new heights on Thursday.

Timothy Green has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends The Motley Fool recommends iQiyi. The Motley Fool has a disclosure policy.

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