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Why Shares of iQiyi Dropped Today

By Timothy Green – Feb 28, 2020 at 1:04PM

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An earnings beat wasn't enough to impress investors.

What happened

Shares of iQiyi (IQ -6.05%) slumped on Friday after the Chinese video streaming company reported its fourth-quarter results. iQiyi beat analyst estimates for both revenue and earnings, but its outlook reflected "substantial uncertainty." The stock was down 9.4% at 12:25 p.m. EST.

So what

iQiyi reported fourth-quarter revenue of $1.1 billion, up 7% year over year and $90 million above the average analyst estimate. The total subscriber base reached 106.9 million, up 22% year over year, with 98.9% of that total paying subscribers.

A declining stock chart.

Image source: Getty Images.

Membership services revenue was $554.6 million, up 21% year over year; online advertising services revenue was $270.5 million, down 15% due to the economic environment in China; content distribution services revenue was $126.1 million, up 68%; and other revenue was $125.6 million, down 21%.

Net loss per ADS was $0.49, beating analyst expectations by $0.13. Cost of revenues exceeded revenues during the quarter, although that spending was down on a year-over-year basis.

"Facing the dawn of a new decade, we look forward to the enormous opportunities ahead of us with the approaching 5G commercial adoption and continuous AI technology innovation. We believe the rising willingness of Chinese users to pay for premium content combined with their access to more convenient payment methods, will create significant potential for our business," said CEO Dr. Yu Gong.

Now what

For the first quarter, iQiyi expects to produce revenue between $1.02 billion and $1.08 billion, up between 2% and 8% from the prior-year period. The company said this outlook reflects substantial uncertainty.

While iQiyi's results were favorable compared to expectations, guidance didn't impress. With the broader market continuing to decline on Friday, there just wasn't enough good news to push the stock higher.

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

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