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iQiyi (IQ) Sheds 4.6% Ahead of Earnings: What To Expect

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Shares of iQiyi Inc. (IQ - Free Report) lost 4.6% during regular hours Monday, a day before the so-called “Netflix of China” releases its latest quarterly earnings report. U.S. stocks were down across the board, but speculative tech stocks like iQiyi bore the brunt of the selloff, adding extra importance to tomorrow’s earnings announcement.

iQiyi shares have soared since its late-March IPO, nearly doubling in value during that time. IQ posted a solid Q1 earnings report, in which it saw 57% year-over-year revenue growth and cut its net loss by over $100 million. Since then, the firm has continued to rapidly grow its viewer base. As of May, iQiyi boasted 61 million premium subscribers, nearly 10 million higher than end-of-2017 numbers.

Still, given iQiyi’s explosive growth this year, there are concerns that the stock is overbought. Therefore a solid earnings report will play a big role in either maintaining or cooling the firm’s bullish momentum. But what should we expect from its soon-to-be-reported quarter? Let’s take a closer look.

Earnings Outlook

iQiyi will release its Q2 fiscal 2018 results after the market closes on Tuesday. Here’s what analysts are expecting, according to our Zacks Consensus Estimates:

Earnings: IQ is projected to report a loss of $2.30 per share, which would represent about a 16.8% decline sequentially.

Estimate Revisions: Analyst coverage on IQ is limited thus far, with our Zacks Consensus Estimate for earnings currently based on just one analyst projection. It has not been revised in the last few months, keeping the stock at a Zacks Rank #3 (Hold).

Revenue: The current estimate has IQ’s Q2 revenue pegged at $958.72 million. This would mark growth of 34% sequentially.


IQ is trading at -4.2x forward 12-month earnings heading into today’s report. This is notably worse than the “Media Market” average of 21.8x, but is a function of the fact that the firm is not yet profitable.

Over the past year, IQ has traded as high as -2.5x and as low as -4.2x. Its 52-week median earnings multiple is -3.8x.

Bottom Line

Based on the metrics above, it is clear that investors are far more optimistic about what the firm has to offer in the future rather than what it is posting now. Because IQ shares have nearly doubled since March, some investors may want to realize their gains instead of risking an earnings play. Investors should note that IQ has a flat Zacks Earnings ESP (Expected Surprise Prediction) of 0%.

A positive Earnings ESP paired with a Zacks Rank #3 (Hold) or better ranking helps us feel confident about the potential for an earnings beat. In fact, our 10-year backtest has revealed that this methodology has accurately produced a positive surprise 70% of the time.

Given the stock’s current Zacks Rank of #3 (Hold), this Earnings ESP value leaves us inconclusive about IQ’s chances at beating estimates going into this afternoon’s report. Regardless, the firm’s rapidly growing share of an increasingly tech-savvy Chinese market makes it a must-watch stock ahead of earnings.

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