iQIYI (IQ) Q3 Loss Narrower Than Expected, Revenues Rise Y/Y

iQIYI IQ reported third-quarter 2019 adjusted loss of 70 cents per ADS, much narrower than the Zacks Consensus Estimate of a loss of 74 cents.

In domestic currency, the company reported loss of RMB5.04 per ADS.

Revenues increased 7% from the year-ago quarter to RMB7.4 billion ($1 billion).

As of Sep 30, 2019, total subscribers increased 31% year over year to 105.8 million. Of this 99.2% were paid subscribers. The number of total subscribers was higher than 80.7 million as of Sep 30, 2018.

The growth was primarily driven by increase in willingness of Chinese consumers to pay for high-quality content.

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

Top-Line Details

Membership services revenues surged 30% year over year to RMB3.7 billion ($520 million), driven by strong subscriber growth, premium content and operational initiatives taken by iQIYI.

Online advertising services revenues were RMB2.1 billion ($289.2 million), down 14% from the year-ago quarter. Revenues declined due to unfavorable macroeconomic conditions in China and intensified competition in in-feed advertising.

Content distribution revenues decreased 18% to RMB680.4 million ($95.2 million) due to deferred content launches during the quarter.

Other revenues were RMB932.3 million ($130.4 million), up 12%, driven by strong performance across various vertical business lines, primarily the company’s gaming business. Notably, iQIYI’s gaming business strengthened post its acquisition of Skymoons.

Operating Details

In third-quarter 2019, cost of revenues increased 7% year over year to RMB8.2 billion ($1.1 billion). The increase was primarily attributed to higher content costs and other cost items. Notably, content costs increased 3% to RMB6.2 billion ($870.5 million).

Selling, general and administrative expenses increased 4% year over year to RMB1.3 billion ($188.8 million), attributable to increased sales and marketing expenses of gaming business related to the consolidation of Skymoons, as well as higher marketing spending for certain iQIYI apps.

Research and development expenses were RMB703.2 million ($98.4 million), up 26% primarily due to higher personnel-related compensation expenses.

Operating loss was RMB2.8 billion ($396.2 million), wider than operating loss of RMB2.6 billion in the year-ago quarter.

Balance Sheet

As of Sep 30, 2019, cash and cash equivalents, restricted cash and short-term investments were RMB13.9 billion ($1.9 billion) compared with RMB16.4 billion ($2.4 billion) as of Jun 30, 2019.

Guidance for Q4

iQIYI expects fourth-quarter total revenues between RMB6.86 billion ($0.96 billion ) and RMB7.28 billion ($1.02 billion). The top line is expected be down 2% to up 4% year over year.

Zacks Rank & Stocks to Consider

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

Some better-ranked stocks in the broader consumer discretionary sector include Twin River Worldwide Holdings TRWH, Cumulus Media CMLS and Liberty Broadband LBRDK, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Twin River Worldwide, Cumulus Media and Liberty Broadband are all set to report their quarterly earnings on Nov 11.

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