iQiyi (NASDAQ:IQ) investors have been on a non-stop thrill ride since the Chinese streaming giant was spun off in early 2018 from Baidu (NASDAQ:BIDU), which still owns a majority stake. After soaring more than $40 per share and gaining 150% in just over two months after its debut, it soon plunged to $14 -- below its $18 IPO price -- to close out 2018. In the year since, the stock price has ebbed and flowed, up about 50% from its lows, but never recapturing its initial highs.
Investors continue to be concerned as iQiyi's losses mount, and the uncertainty caused by the COVID-19 coronavirus outbreak certainly isn't helping.
Let's look at some of the highlights of iQiyi's fourth-quarter results to see what the numbers tell us about the company's future.
1. Revenue grew, but more slowly
iQiyi reported revenue that climbed 7.5 billion yuan ($1 billion), up 7% from year over year. The results topped the high end of management's forecasted range of 6.86 billion and 7.28 billion yuan, while easily surpassing analysts' consensus estimates of 7.04 billion yuan.
The contributions from its operating segments were mixed. Membership revenue increased 21% year over year, while sales of online advertising fell 15%. On the Q4 conference call, founder and CEO Yu Gong pointed to the "challenging macro and competition environment," resulting in a tough year for the advertising market.
Content distribution revenue soared an impressive 68% compared with the prior-year quarter, while other revenue slumped 21%. iQiyi is expanding its other smaller businesses, which include live broadcasting, its talent agency, digital games, and intellectual property (IP) licensing, which provide additional ways for the company to monetize the IP from its hit shows. One area management highlighted was its games business, which Yu said "performed particularly well with the launch of a number of successful new games such as The Croods and The Death of Love ... which drove strong organic revenue growth."
2. Continued heavy, but slowing, spending on content
iQiyi is most often compared to its American cousin Netflix (NASDAQ:NFLX), and much like its inspiration, iQiyi continues to spend heavily on programming. "We continued to build our comprehensive content library and capitalize on the deep value of our original IPs," Yu said in its earnings press release.
Cost of revenue slowed to 7.9 billion yuan ($1.1 billion), down 7% year over year -- exceeding to the total revenue generated for the quarter. Of that, content costs of 5.7 billion yuan ($815 million) declined 13% compared to the prior-year quarter. CFO Xiaodong Wang pointed to the company's emphasis on controlling spending, saying, "Our content costs trended lower as a percentage of total revenues in 2019, which is an encouraging sign of our more balanced content mix and rationalized competition landscape."
3. Mounting, but slowing, losses
iQiyi reported a net loss of 2.5 billion yuan ($358 million), a stark improvement from the 3.5 billion yuan loss in the prior-year quarter. That resulted in a loss per share of 3.43 yuan ($0.49), down from a loss per share of 4.83 yuan in the year-ago quarter.
As the company continues to invest heavily to increase its library of content and its IP, it closely follows Netflix's strategy of focusing first on the content, and counting on new customers to subscribe -- "If you build it, they will come," to quote the movie Field of Dreams. This spending is likely to continue generating additional losses for the foreseeable future.
4. Subscriber base is growing
The Chinese streaming giant delivered subscribers that grew to 106.9 million, up 22% year over year. 98.9% of those are paying members, with the rest on free trials. To put that into perspective, Netflix's worldwide subscriber base climbed to just over 167 million in Q4, up about 17%.
It's also worth noting that iQiyi's year-over-year subscriber growth has slowed considerably over the past 12 months, as the 22% increase this quarter was a far cry from the heady 72% gains this time last year, illustrating the significant competition the company faces on its home turf of China.
5. Growth could slow even more -- or not
For the upcoming first quarter, management is forecasting net revenue in a range of 7.10 billion yuan ($1.02 billion) and 7.52 billion yuan ($1.08 billion), which would represent year-over-year growth of between 2% and 8%. The company doesn't provide earnings (or loss) per share estimates.
Due to the uncertainty resulting from coronavirus, iQiyi is unable to provide a full-year forecast, but Yu had this to say:
Because a lot of people stay at home, we have observed some big traffic hike, as well as some beneficial effect on our membership and acquisition. However, with a lot of companies and a lot of people gradually getting back to work, we think there will be some slowdown in the trend and even some setback in the future. So that trend is just temporary.
iQiyi continues to follow the Netflix playbook of focusing on content creation and expanding its library, noting that some of its oldest original programs continue to drive viewer engagement and membership gains. With that in mind, investors should expect compounding losses to continue for the foreseeable future.