Why iQiyi Stock Is Dropping This Week

What happened

iQiyi (NASDAQ:IQ) shareholders are losing ground to the market this week. The stock had fallen 13% week to date as of 9 a.m. EDT Friday morning even as the S&P 500 ticked slightly higher, according to data provided by S&P Global Market Intelligence.

The slump is being powered by a poorly received earnings report, plus a wider move on Wall Street away from China-based businesses.

A young woman watches TV on a laptop in bed.

Image source: Getty Images.

So what

iQiyi reported generally good news for its fiscal first quarter, which ended in late June. The Chinese streaming-video giant said sales rose 3% thanks to a return to subscriber gains. The company had lost subscribers in each of the last three quarters, and so this week’s report was a welcome change of tune for shareholders .

It improved its profitability for the fifth consecutive quarter, too, although iQiyi is still generating plenty of red ink. Operating loss was $174 million, or 15% of revenue, in the second quarter. “Our second quarter results were largely in line with our expectation[s],” CEO Yu Gong said in a press release. Still, Wall Street wanted more-tangible signs of accelerating growth, especially given the wider unease around Chinese tech stocks.

Now what

iQiyi still enjoys a large and growing addressable market in the subscription TV niche. Its focus on more-premium film and series content, meanwhile, could pave the way for impressive earnings growth over time, assuming subscriber gains reaccelerate.

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There’s a faint hint of that trend potentially starting in late 2021, and management is predicting that sales will rise by 6% to 12% in the third quarter. But the stock will likely stay under pressure for now, thanks to the combination of a cloudy growth outlook and investor concerns about Chinese tech stocks.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.

View more information: https://www.fool.com/investing/2021/08/13/why-iqiyi-stock-dropped-this-week/

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