Personal Finance
IQ

iQiyi Instantly Streams Profits From Its JD.com Deal; Dropbox Makes Its First Post-IPO Report

In this segment of Motley Fool Money , host Chris Hill is joined by senior analysts Jason Moser, Matt Argersinger, and Ron Gross to reflect on a smart move by video-streaming specialist iQiyi (NASDAQ: IQ) . It sealed a deal late last month that links its VIP membership program to that of e-tailer JD.com (NASDAQ: JD) . It looks like Chinese consumers like the prospect of paying one for the benefits of both.

The Fools discuss its performance since its recent IPO, and speculate about how its growth arc will look. They then turn to another recently public online business: Dropbox . It beat on the top line, the bottom line, and guidance. So why was the market unimpressed with its earnings report? The Fools have a few educated guesses, and they explain what worries them about the company's prospects.

A full transcript follows the video.

10 stocks we like better than Walmart

When investing geniuses David and Tom Gardner have a stock tip, it can pay to listen. After all, the newsletter they have run for over a decade, the Motley Fool Stock Advisor, has tripled the market.*

David and Tom just revealed what they believe are the ten best stocks for investors to buy right now... and Walmart wasn't one of them! That's right -- they think these 10 stocks are even better buys.

Click here to learn about these picks!

*Stock Advisor returns as of May 8, 2018

The author(s) may have a position in any stocks mentioned.

This video was recorded on May 11, 2018.

Chris Hill: Shares of iQiyi, the Netflix of China, got a boost this week when the company announced that its new partnership with JD.com is already paying off. What's the story, Matty?

Matt Argersinger: They just signed this at the end of April, this partnership with JD.com, which is the second-largest e-commerce company in China. They merged together their JD Plus program, which is their Prime kind of program, and iQiyi's membership program, and iQiyi has already added one million subscribers in about a week's time since signing that deal. So, you can see how that's paying off. They ended March with 61 million subscribers. I really think, by the end of 2019, the end of next year, iQiyi itself could have over 100 million paying members.

Hill: I was going to say, this is a company we talked about before it went public. You were as excited about the prospects of this company as any company I've seen coming into the market. How do you think they've been doing? Obviously, early days, in terms of being a public company. But, how do you think they're handling it so far?

Argersinger: Well, nothing but good news so far. They had great first quarter results, showing, I think it was 57% growth in year over year revenue in the membership business, which I think is going to be the key business going forward. The question is, can they maintain that leadership in online video that they have right now in China? And I think partnerships like the one they have with JD are going to be pivotal to that. They have a licensing deal with Netflix. And, by the way, Golden Slacks [ Goldman Sachs ] gave them a buy rating this week and a $23 price target, so that doesn't hurt the stock.

Hill: Dropbox , the cloud storage company, out with its first quarterly report as a public company. Profits, revenue and guidance all came in higher than Wall Street was expecting. Jason, it just wasn't good enough.

Jason Moser: No idea how to follow up the Golden Slacks reference. [laughs] Listen, I said when Dropbox went public -- we were talking about this a quarter ago, when it went public --that I just didn't want to have any part of it. And I stand by that. It could be a decent business, maybe, in time. And they turned in a respectable quarter. Top line was up 28%. Still not profitable, of course. Paying users of 11.5 million, compared to 9.3 million a year ago. That's good, too. When we look at their paying users as a percentage of overall users, it's still so tiny, it's like 2%.

So, you have a business here with slowing revenue growth. Paying users is such a small part of the total base. There's no real competitive advantage. And the market is paying somewhere around 11-12X sales for a business like this. If you're going to pay that kind of a multiple, they need to be growing faster than they are. So, I suspect, we'll probably see this stock pull back some more here in the coming year. And maybe there's a point where it becomes a little bit more interesting, but not right now.

Hill: I understand why they went public. I understand the rationale there. But I was skeptical because they're wading into a forest filled with giants, when you think about all of the massive tech companies that are doing cloud storage. It really seems hard for any upstart company to get any sort of toehold.

Moser: I think that's the right observation. When you look at this space and you look at companies like Microsoft , Alphabet , Amazon all doing that same kind of stuff -- and, to be clear, Dropbox uses Amazon's cloud storage for part of their infrastructure. You just have to see something really special there, and I just don't see it with them yet.

John Mackey, CEO of Whole Foods Market, an Amazon subsidiary, is a member of The Motley Fool's board of directors. Suzanne Frey, an executive at Alphabet, is a member of The Motley Fool's board of directors. Teresa Kersten is an employee of LinkedIn and is a member of The Motley Fool's board of directors. LinkedIn is owned by Microsoft. Chris Hill owns shares of AMZN. Jason Moser has no position in any of the stocks mentioned. Matthew Argersinger owns shares of GOOG, AMZN, iQiyi, JD.com, and NFLX and has the following options: short July 2018 $42 puts on JD.com, long January 2020 $50 calls on JD.com, and short January 2020 $50 puts on JD.com. Ron Gross owns shares of GOOG, AMZN, and MSFT. The Motley Fool owns shares of and recommends GOOGL, GOOG, AMZN, JD.com, and NFLX. The Motley Fool recommends iQiyi. The Motley Fool has a disclosure policy .

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

IQ JD

Other Topics

Stocks

The Motley Fool

Founded in 1993 in Alexandria, VA., by brothers David and Tom Gardner, The Motley Fool is a multimedia financial-services company dedicated to building the world's greatest investment community. Reaching millions of people each month through its website, books, newspaper column, radio show, television appearances, and subscription newsletter services, The Motley Fool champions shareholder values and advocates tirelessly for the individual investor. The company's name was taken from Shakespeare, whose wise fools both instructed and amused, and could speak the truth to the king -- without getting their heads lopped off.

Learn More