iQiyi Q1 earnings preview: What you need to know

As concerns related to the US-China spat has taken a back seat, iQiyi Inc (NASDAQ: IQ) stock has taken an upward trend. The stock has gained 38% since the start of the year, compared a decline of 3.6% in the trailing 52 weeks.

The video streaming service, fondly called Chinese Netflix, is scheduled to report first-quarter earnings results after the closing bell on Thursday, May 16. Analysts have projected a 34% increase in net revenues, helped by popular shows including The Knight of Shadows and Burning Ice. However, the company is expected to report another quarterly loss, this time of 52 cents per share, as it continues to burn cash on original content.  

The company, which is the video streaming arm of Chinese major Baidu (NASDAQ: BIDU), continues to impress in terms of revenue and subscriber growth. During the last reported quarter, it reported a 55% increase in revenue to RMB 7 billion ($1 billion), helped by a 72% increase in subscriber base. Analysts had projected revenue of just $961.45 million in Q4.

The company had 87.4 million subscribers at the end of fiscal 2018, of which over 98% were paid users. iQiyi’s content is highly popular and we can expect to see further growth in its membership business in Q1. It also doesn’t shy from innovating with newer technologies including augmented reality to provide better binge-watching experience to viewers. But all that is coming at the cost of squeezed margins.

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Last quarter, the management had stated that they would continue to expend on premium content and technology innovation to drive topline growth.  So we can expect to see increased costs on revenues and weakening cash flow. Expenses doubled during the last quarter to RMB 8.5 billion ($1.2 billion).

As profitability is not on the short-term agenda, investors will be looking at other key numbers such as advertising revenues, which is currently seeing strong growth on the back of licensed content. Subscriber growth could be another key metric watched by the Street to gauge iQiyi’s consistency. A partnership with peer Chinese firm JD.com (NASDAQ: JD) as well as cross-promotional offers are expected to drive subscriber base in Q1.

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