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iQIYI's (IQ) Q4 Loss Matches Estimates, Revenues Rise Y/Y

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iQIYI (IQ - Free Report) reported fourth-quarter 2019 adjusted loss of 49 cents per ADS, which was in line with the Zacks Consensus Estimate.

In domestic currency, the company reported loss of RMB3.43 per ADS.

Revenues increased 7% from the year-ago quarter to RMB7.5 billion ($1.1 billion).

As of Dec 31, 2019, total subscribers increased 22.3% year over year to 106.9 million. Of this, 98.9% were paid subscribers. The release of a number of high popular drama series drove subscriber growth, namely Qing Yu Nian, The Listener, Sword Dynasty and Spirit Sword Mountain among others.

Moreover, a wider range of content offerings including theatrical movies, such as Ne Zha and The Captain, animation serials One Piece, as well as premium variety show, More Than Forever also contributed to subscriber growth.

iQIYI, Inc. Sponsored ADR Price, Consensus and EPS Surprise

iQIYI, Inc. Sponsored ADR Price, Consensus and EPS Surprise

iQIYI, Inc. Sponsored ADR price-consensus-eps-surprise-chart | iQIYI, Inc. Sponsored ADR Quote

Top-Line Details

Membership services revenues increased 21% year over year to RMB3.9 billion ($554.6 million), driven by strong subscriber growth, premium content and operational initiatives taken by iQIYI.

Online advertising services revenues were RMB1.9 billion ($270.5 million), down 15% from the year-ago quarter. Revenues declined due to unfavorable macroeconomic conditions in China.

Content distribution revenues surged 68% to RMB878.0 million ($126.1 million) driven by higher volume and increased contractual price of the titles distributed during the quarter.

Other revenues were RMB874.4 million ($125.6 million), down 21% primarily due to the soft performance of certain business lines, partially offset by strong growth in game business. Notably, iQIYI’s gaming business strengthened post its acquisition of Skymoons.

Operating Details

In fourth-quarter 2019, cost of revenues decreased 7% year over year to RMB7.9 billion ($1.1 billion). The decrease was primarily attributed to higher content costs, partially offset by an increase in other cost items. Notably, content costs decreased 13% to RMB5.7 billion ($814.7 million).

Selling, general and administrative expenses increased 15% year over year to RMB1.4 billion ($201.0 million), attributable to increased sales and marketing expenses of gaming business, as well as higher marketing spending for certain iQIYI apps.

Research and development expenses were RMB711.3 million ($102.2 million), up 17% primarily due to higher personnel-related compensation expenses.

Operating loss was RMB2.5 billion ($363.2 million), wider than operating loss of RMB3.3 billion in the year-ago quarter.

Balance Sheet

As of Dec 31, 2019, cash and cash equivalents, restricted cash and short-term investments were RMB11.5 billion ($1.7 billion) compared with RMB13.9 billion ($1.9 billion) as of Sep 30, 2019.

Guidance for Q1

iQIYI expects first-quarter total revenues between RMB7.10 billion ($1.02 billion) and RMB7.52 billion ($1.08 billion). The top line is expected to be up 2% to 8% year over year.

Zacks Rank & Stocks to Consider

iQIYI currently has a Zacks Rank #3 (Hold).

Some better-ranked stocks in the broader consumer discretionary sector include Gray Television, Inc. GTN, TEGNA Inc. TGNA and YETI Holdings, Inc. (YETI - Free Report) , each carrying a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

The long-term earnings growth rate for Gray Television, TEGNA and YETI Holdings is currently projected to be 10%, 10% and 20%, respectively.

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