In the ecosystem of online media streaming, who comes to mind first? Is it Spotify, Amazon Music, or Apple Music. These world-renowned streaming companies might instantly come to mind of you live outside Asia. However, in China streaming companies like iQiyi, Tencent Video, and Alibaba’s Yoku Tudou dominant the media ecosystem. IQ is an online video platform in China. The recent growth of iQiyi, 40% in two days, is attracting the eyes of many investors outside China. Today we will discuss why iQiyi is up, are they pandemic proof, and is there still room to grow?
Why is iQiyi up 40% in two days?
Initially, you might think the IQ stock up because of the market bulls raging uncontrollably over the past few days. However, it seems the surge was not coincidental.
International expansion always creates a buying frenzy. For example, the BNPL industry went nuts when Zip and APT announced venturing into overseas markets. Well, it looks like iQiyi could rocket into the centre of the international landscape as they recently poached Kuek Yu-Chuang from Netflix. IQ firmly believes that Kuek’s business acumen will ensure the streaming company can create an international streaming network. However, IQ is not relying purely on Kuek. IQ is already expanding into Southeast Asia. Also, since November 2019, they began offering their streaming services in English, Thai, Indonesian, Vietnamese, Malay, and many others to capture more global market share.
Furthermore, sources are speculating that Tencent could acquire IQ. The sheer size of Tencent combined with IQ would be close to that of Netflix. However, the reality of Tencent acquiring IQ is doubtful. Mainly because the deal would need regulatory approval, which is difficult with the current dislike the US government has to Chinese companies. An alternative solution would be if IQ bought out Tencent Video. In turn, IQIYI could maintain its NASDAQ listing. Nonetheless, as long as the belief of the acquisition is alive, the stock will continue to be bullish. Because remember traders buy on what they believe to be true even if it is not. Hence the acquisition rumours caused a 35% surge in Tuesday’s trading and made IQ the most traded stock in pre-market. (at the time of writing).
Is the IQ stock pandemic-proof?
In short, yes. However, then again, most streaming companies are pandemic proof. The real conundrum comes to whether IQ can obtain paid customers as opposed to free users. Considering 99.2% of IQ’s customers are paid, I would say they have this contention covered. Also, the constant distribution of free data to users during the pandemic is increasing the usage of streaming service companies like Spotify, Tencent, and IQ. However, IQ is not legal proof, with the alleged inflated sales conduct still looming large.
Is there still room for the IQ stock to grow?
Before I start, I am obliged to remind our viewers that this is not advice only general commentary from my extensive research in this area.
The sentiment behing the IQ stock is bullish. Mainly because of the speculated rumours and growth potential for 2020. However, in the current market climate, the bulls and bears are playing a daily tag team. Therefore, you could invest one day and then be wrenched down into the red the next day.
IQiyi’s long-term future is still undecided
The long term future holds an optimistic and pessimistic outlook. On one side, you have a company you are still in the boxing ring with Tencent Video and Alibaba’s Yoku Tudou. If no acquisition arises, the competition could become even more fierce. Also, the legal allegation that IQ inflated their sales remains unsolved, which could see short sellers multiply in an instant. Add a potential delisting to the mix, and you have an extremely pessimistic future.
However, on the other side of the fence, you have a streaming company showing strong growth potential. IQ’s subscriber base grew by an impressive 23% in Q3 of 2020, totalling 118.9 million. 99.2% of IQ’s customers are paid. In turn increases in market should correlate to strong growth in revenue. Considering IQ’s aggressive international expansion, we could see significant revenue upside in the imminent future. Thus, if I were investing in the long-term, I would only put a small amount of capital in. Because if the acquisition rumours fizzle out then the IQ stock could plummet, providing a nice entry point (opinion not advice).
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The information above is not financial advice. Youth Investment Group has no liability for personal financial interests or investment decisions. You should make your own investment decisions based upon your own research and what you believe is best for you.
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Written by Patrick McLoughlin, Senior Manager of YIG.