What happened

Chinese streaming-video specialist iQiyi (NASDAQ:IQ) had a rough summer. Heading into Tuesday night's third-quarter earnings report, the stock had lost half of its value in four months. Unfortunately, yesterday's results failed to soothe rattled investor nerves. iQiyi's shares plunged as much as 14.3% lower on Wednesday morning, recovering to an 11% drop as of 11:30 a.m. EDT.

So what

For the third quarter, iQiyi posted an adjusted net loss of $0.63 per share based on revenue of $1 billion. Analysts had been expecting a net loss of $0.43 per share, and their $1 billion sales target was spot on. Revenue also landed near the top end of management's guidance range for the quarter, having jumped 48% higher year over year.

That's a mixed report with solid sales but painful bottom-line losses. Moreover, the mix of that revenue wasn't exactly what investors had been hoping for. Ad sales dropped 4% because of tighter advertising regulation in China, combined with World Cup coverage on TV stealing viewers' attention and advertisers' budgets away from iQiyi's streaming-video portals.

Yellow charting arrow headed abruptly downward, set against a grayscale array of unclear charts.

Image source: Getty Images.

Now what

So iQiyi's ad sales ran into two unusual headwinds at once, resulting in a completely stalled growth trend for that particular revenue channel. On top of that, currency exchange effects accounted for essentially all of the period's bottom-line losses.

Meanwhile, membership subscriptions and pay-per-view sales of premium content soared 78% higher, and content distribution revenue more than tripled. Those are fantastic numbers on their own, and iQiyi's lagging ad sales should bounce back when last quarter's headwinds subside. The World Cup is certainly behind us, for starters.

That's why I find today's dramatic drop downright puzzling. iQiyi really didn't deserve a radical haircut today.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.