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iQIYI (IQ) Incurs Loss in Q1 Earnings, Beats on Revenues

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iQIYI (IQ - Free Report) reported first-quarter 2020 net loss of 56 cents per ADS, which lagged the Zacks Consensus Estimate by 14.3%. However, revenues of $1.1 billion beat the consensus mark by 3.6%.

In domestic currency, the company reported loss of RMB3.92 per ADS, wider than RMB2.52 reported in the year-ago quarter. However, revenues increased 9% from the year-ago quarter to RMB7.6 billion.

As of Mar 31, 2020, total subscribers rose 23% year over year to 118.9 million. Of this, 99.2% were paid subscribers.

Similar to global streaming providers like Netflix (NFLX - Free Report) and Disney’s (DIS - Free Report) Disney+, iQIYI benefited from a spike in demand for digital entertainment amid coronavirus-led lockdowns and shelter-in-home guidelines. iQIYI, which currently has a Zacks Rank #3 (Hold), added 12 million subscribers sequentially in the quarter under review. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Notably, Netflix added 15.77 million paid subscribers globally, which surged 64.3% year over year in the first quarter. Further, Disney+, which was launched on Nov 12, 2019, won 33.5 million paid subscribers within its fold in second-quarter fiscal 2020. As of May 4, the company estimates Disney+ subscriber base to be 54.5 million.

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


Both Netflix and Disney+ are not available in China, which is iQIYI’s primary market of operation.

Moreover, iQIYI’s strong content portfolio drove results. Top-rated dramas preferred by subscribers included iPartment Season 5, Under the Power and Qing Yu Nian among others.

Top-Line Details

Membership services revenues improved 35% year over year to RMB4.6 billion ($654.5 million), driven by strong subscriber growth, premium content and increased entertainment demand during the Chinese New Year holiday and the coronavirus pandemic.

Online advertising services revenues were RMB1.5 billion ($217 million), down 27% from the year-ago quarter. Revenues declined due to unfavorable macroeconomic conditions in China related to the coronavirus pandemic.

In fact, recent results from iQIYI and (SOHU - Free Report) showed that the coronavirus outbreak had a significant adverse impact on the advertising market in China. Notably, Sohu’s first-quarter 2020 brand advertising revenues declined 40% year over year to $26 million.

Content distribution revenues rose 29% to RMB602.8 million ($85.1 million). Solid growth was attributed to the increase in high-quality content, which fulfilled distribution to several platforms during the reported quarter.

Other revenues were RMB875.9 million ($123.7 million), down 9% primarily due to the soft performance of certain business lines, partially offset by strong growth in game business. Notably, iQIYI’s gaming business was strengthened by its acquisition of Skymoons.

Operating Details

In the first quarter, cost of revenues increased 9% year over year to RMB7.9 billion ($1.1 billion) due to higher content costs. Notably, content costs increased 11% to RMB5.9 billion ($836.4 million).

Selling, general and administrative expenses increased 15% year over year to RMB1.3 billion ($185.1 million), attributable to higher marketing spending for certain iQIYI apps and increased allowance for doubtful accounts due to the coronavirus pandemic.

Research and development expenses were RMB678.1 million ($95.8 million), up 13%, primarily due to higher personnel-related compensation expenses.

Operating loss was RMB2.2 billion ($316.6 million), narrower than the operating loss of RMB2 billion in the year-ago quarter.

Balance Sheet

As of Mar 31, 2020, cash and cash equivalents, restricted cash and short-term investments were RMB9.9 billion ($1.4 billion) compared with RMB11.5 billion ($1.7 billion) as of Dec 31, 2019.

Guidance for Q2

iQIYI expects second-quarter 2020 revenues between RMB7.25 billion ($1.02 billion) and RMB7.67 billion ($1.08 billion). The top line is expected to be up 2-8% year over year.

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