What happened
iQiyi (IQ 3.53%) stock gained 27.7% in June, according to data provided S&P Global Market Intelligence.
iQiyi stock continued its rapid post-IPO climb at the start of June thanks to the announcement of new content deals. The company, which was spun off from Chinese search-engine giant Baidu (BIDU 0.62%), has since retreated from the highs reached last month but is still up roughly 60% from its market debut.
So what
iQiyi stock climbed early in June thanks to continued momentum from its first-quarter earnings release in April and a series of promising announcements in May. Shares continued to gain ground on news that the company's internally produced show Hot Blood Dance Crew had set streaming advertising records and that its films Blue Amber and Taming the Rabbit had been nominated for awards at the Shanghai International Film Festival.
iQiyi then issued a press release on June 16 announcing that it had acquired exclusive online streaming rights in China to the four Professional Golf Association major tournaments. This added to the company's already solid lineup of golf content, made its platform the leader for streaming the sport in China, and helped push the stock to a record high. However, much of the month's gains were reversed amid a broader sell-off of Chinese stocks.
Now what
There doesn't appear to have been any company-specific news to trigger the sell-offs that started toward the end of June and have continued into July.
Chinese tech stocks have cooled down following escalating trade tensions between the country and the U.S., and iQiyi has been among those to see significant sell-offs. While a deterioration of trade relations could have a negative impact on overall economic development in China, iQiyi's entertainment-based business and focus on the local market should allow it to continue posting rapid sales growth even if the situation worsens.
In the March-ended quarter, the streaming video platform saw its total sales increase 57% year over year. The company is currently investing heavily in content production and acquisition, so it's unlikely that the business will be significantly profitable in the near term. However, as world-beaters like Netflix and Amazon.com have shown, eschewing near-term profitability to build competitive advantages can be the right avenue to delivering tremendous performance.
iQiyi will likely report second-quarter earnings results near the end of July or early in August. Investors should pay attention to growth for the company's paid-member and advertising-based business -- with the expectation that expansion for each segment should push total revenue up roughly 45%.
