IQIYI (IQ) Reports Q4 Loss, Revenues Up On User Base Growth

iQIYI (NASDAQ:IQ) reported fourth-quarter 2018 adjusted loss of 70 cents per ADS. In domestic currency, the company reported loss of RMB4.83 per ADS.

Revenues soared 55.2% from the year-ago quarter to RMB7 billion ($1 billion).

The Zacks Consensus Estimate was pegged at a loss of 69 cents.

As of Dec 31, 2018, total subscribers were 87.4 million, of which 98.5% were paid subscribers. Total subscribers as of Dec 31, 2017, were 50.8 million.

Top-Line Details

Membership revenues surged 76% year over year to RMB3.2 billion ($465.6 million), primarily driven by strong subscriber growth.

The company’s joint membership program with JD.com helped in expanding user base. iQIYI also launched a combined membership class mobile video data package with a video streaming app, MIGU.

The company recently extended its joint membership program with Ctrip. The program now enables iQiyi Diamond VIP and QIYIGUO members to enjoy certain priority title services from Ctrip. Moreover, Ctrip Prime members can now activate an eight-month VIP membership from iQiyi.

Online advertising services revenues were RMB2.2 billion ($320.5 million), up 9% from the year-ago quarter. Growth was driven by robust performance from brand advertising business. The company’s expanding library of self-produced content is a key catalyst.

iQIYI’s self-produced shows — Tang Dynasty Tour, The City of Chaos and the Original Sin — performed well in the fourth quarter. The company also added a number of movies, including Dying to Survive, to the platform that helped in expanding subscriber base.

Content distribution revenues jumped 137% to RMB522 million ($75.9 million). Increased number of premium content drove segment top-line growth.

Other revenues were RMB1.1 billion ($160.1 million), up 129%, driven by strong performance across various vertical business lines and the consolidation of Skymoons.

Operating Details

In fourth-quarter 2018, cost of revenues soared 100% year over year to RMB8.5 billion ($1.2 billion). Growth was primarily attributed to higher content costs that jumped 97% to RMB6.5 billion ($943.4 million).

Selling, general and administrative expenses increased 58% year over year to RMB1.2 billion ($177.7 million) primarily due to higher marketing spending in channel coverage and content related promotion.

Research and development expenses were RMB607.5 million ($88.4 million), up 67% primarily due to the increased personnel-related compensation expenses.

Operating loss was RMB3.3 billion ($483.5 million) compared with operating loss of RMB856.1 million in the year-ago quarter.

Balance Sheet

As of Dec 31, 2018 cash and cash equivalents, restricted cash and short-term investments were RMB12.8 billion ($1.9 billion) compared with RMB1.51 billion as of Dec 31, 2017.

Guidance

For the first quarter of 2019, iQIYI expects total revenues between RMB6.80 billion ($989.6 million) and RMB7.10 billion ($1.0 billion). The top line is expected to grow 40-46% year over year.

Zacks Rank & Stocks to Consider

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

NTN Buzztime (NYSE:NTN) , Nexstar Broadcasting Group (NASDAQ:NXST) and TEGNA (NYSE:TGNA) are better-ranked stocks in the broader consumer discretionary sector. All three stocks have a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Long-term earnings growth rate for both Nextstar and TEGNA is 10%, and for NTN Buzztime is 20%.

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