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Why iQIYI, Inc. Stock Fell 27.4% in October

By Steve Symington – Nov 13, 2018 at 6:18PM

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And what investors should be watching in the months ahead.

What happened

Shares of iQiyi Inc. (IQ 1.82%) dropped 27.4% in October, according to data from S&P Global Market Intelligence, after the Chinese streaming video specialist revealed widening losses in its latest quarter.

That's not to say all of iQiyi's losses last month can be chalked up to its quarterly update. Rather, shares drifted lower for most of last month both as broader market indices pulled back from all-time highs, and amid concerns of an escalating trade war between China and the United States. Still, iQiyi stock plunged as much as 14% on Oct. 31, 2018 alone -- the first trading day after its third-quarter report.

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So what

That's not to say iQiyi's results were actually bad. Revenue soared 48% year over year at constant currencies to $1.0 billion, driven largely by a 78% increase in membership revenue to just over $415 million. But that growth also translated to a whopping net loss of $457 million, or $0.63 per share, almost triple the amount it lost in the same year-ago period and well below the $0.44 per-share deficit Wall Street was modeling.

For that, investors can thank the company's conscious decision to aggressively invest in content -- a move iQiyi CFO Xiaodong Wang called "necessary and within our expectations as we are going through a transition period toward building an optimized and healthier content ecosystem which will position us well for the future."

Now what

Incidentally, iQiyi stock rebounded nearly 13% on Nov. 1, 2018, as multiple analysts stepped out to defend the company's original content strategy and long-term direction. But shares have all but given up those gains in the days since despite an absence of company-specific news that might merit such a decline. In the end, for investors willing to take advantage of the pullback, I continue to maintain that iQiyi is a compelling buy today.

Steve Symington owns shares of iQiyi. The Motley Fool recommends iQiyi. The Motley Fool has a disclosure policy.

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