What happened
Shares of iQiyi (IQ 5.38%) jumped 15.4% in February, according to data from S&P Global Market Intelligence, after the Chinese streaming video platform reported better-than-expected fourth-quarter earnings, building on a stronger performance that had been building up for most of the year.
iQiyi, which is seen as China's version of Netflix, said revenue came in at $1.1 billion and generated a profit of $0.35 per share, or $0.98 per share on an adjusted basis. Analyst Daniel Chen at J.P. Morgan was surprised by the robust growth iQiyi produced, noting adjusted earnings were 176% more than what it had forecast. Chen subsequently raised the one-year price target on the stock to $11 per share from $8 per share.
Image source: Getty Images.
So what
Like Netflix, the Chinese streamer has had to produce more content in-house to maintain parity with the competition and the quality of its programming has reportedly been very good, helping iQiyi grow its subscriber base. The streaming video service said the average daily number of total subscribing members for the quarter jumped 15% to 111.6 million and was more than 10% higher than the number it had in the third quarter. Member services revenue was the highest it's ever been.
Yet also like numerous U.S. businesses, iQiyi saw a tougher landscape in advertising, with ad revenue dropping 7% for the period to $225.2 million, which it blamed on "the challenging macroeconomic environment."
Wall Street is looking for iQiyi's strong performance to continue into the current year and many analysts raised their price target on its stock. Bank of America nearly doubled its target to $9 per share from $4.70 per share; Goldman Sachs raised it to a buy rating with a $10-per-share target, pointing to its partnership with TikTok equivalent Douyin as a game changer for the company; and HSBC raised its target price to $8 per share from $5 per share, though it kept a hold rating on the stock due to dilution concerns.
Now what
The dilution concerns might not be unwarranted. iQiyi immediately followed up its earnings report with an announcement that it was raising $600 million in through a convertible bond offering that will be used to pay off debt.
