Check out the latest iQiyi earnings call transcript.

When it comes to iQiyi (NASDAQ:IQ), its volatile rookie year may seem as if it's been a roundtrip to nowhere. China's leading video streaming service went public 10 months ago at $18. It was initially a broken IPO, closing just above $15 on its first day of trading. The stock would go on to triple off its low by June, only to give it all back -- and then some -- when it bottomed out at $14.35 earlier this month. 

The stock has rallied in recent weeks, and now it's just back above its original $18 IPO price. iQiyi may be back to where it was nearly a year ago, but it's not fair to say that it's been marching in place. Though the price tag may be where it was in the springtime of last year, iQiyi is a far larger and more successful company. Revenue has soared 48% over the past year. Its premium subscriber count is growing even faster than that. The market's starting to like the looks of iQiyi now, but it may like it even more in a few years.

A chain of personal theaters streaming iQiyi content.

Image source: iQiyi.

Party like it's 2024

Check out the latest Netflix earnings call transcript.

Streaming video is here to stay, and there's a reason why Netflix (NASDAQ:NFLX) has become one of the market's biggest winners since it pushed to lead this booming niche. Netflix has been a force in most of the countries that it has entered, but it has been hesitant to break into the world's most populous nation on its own. 

Sure, Netflix is barred from entering mainland China on its own as a platform operator, but that isn't stopping it from investing in Chinese-language original content. It also helped Netflix realize that it's easier to partner with iQiyi -- the two companies entered into a licensing deal nearly two years ago -- than to watch from the outside and miss the Chinese online revolution play out. 

Where iQiyi rests in five years may seem to depend on whether Netflix is still a partner or doing more than just being stuck on the outside looking in. However, even if Netflix and other platforms find a way to enter China, is there any reason to believe that iQiyi will bequeath its throne? iQiyi's audience is growing at a heady clip. The vast majority of iQiyi users may be freeloaders, but its premium subscriber count has soared 89% over the past year to hit 80.7 million. The same economies of scale that are making it impossible for a rival to catch up to Netflix is also playing out for iQiyi in China. From brand awareness to the ability to divide its content costs across more paying users than anyone else, the future belongs to iQiyi because it has the market cornered in the present. 

One can also argue that iQiyi is a relative bargain. It trades at 3.8 times its trailing revenue, far less than Netflix's multiple of 9.8, and that's with iQiyi growing its business faster. Pitting one potentially overvalued stock against another investment that may be even more expensive isn't necessarily a winning argument, but one can also say that if Netflix wins, iQiyi will be an even bigger winner.

iQiyi isn't presently profitable, and analysts don't see it turning the corner on that front until 2022. However, iQiyi is well entrenched in a booming business opportunity in a country that just happens to be out of favor with investors. You have to like iQiyi's odds.