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3 Takeaways from iQiyi’s Earnings Report

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iQiyi (NASDAQ:IQ) reported its earnings results for the first quarter of 2020 on Monday after the market close. The report delivered a mixed bag of results. The company had high content and marketing costs.

These are the key takeaways from iQiyi’s first-quarter report.

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COVID-19 impacted iQiyi’s advertising business

iQiyi delivered $1.1 billion in revenue, which rose by 9.0% YoY (year-over-year) and beat the consensus estimate at $1.02 billion. The company’s earnings report showed that the revenue grew across all of the business segments except advertising.

The company’s advertising sales fell 27% YoY to $217 million. The coronavirus pandemic left businesses grappling with unexpected expenses. As a result, many companies resorted to reducing their marketing budgets. iQiyi and other advertising providers, including iQiyi’s largest shareholder Baidu (NASDAQ:BIDU), suffered weakness in their advertising businesses.

iQiyi posted a loss per share of 56 cents, which widened from 37 cents a year ago and missed the consensus estimate at 45 cents. The company’s earnings report showed that it faced higher costs in the first quarter. For example, the content costs rose 11% YoY to $836.4 million. Meanwhile, the SG&A costs rose 15% YoY to $185 million.

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12 million subscribers added in Q1

iQiyi’s earnings report showed that it added 12 million video subscribers in the first quarter. The company wrapped up the quarter with 119 million subscribers. The subscriber number shows that iQiyi benefited from the pandemic lockdowns that kept many people at home. Netflix (NASDAQ:NFLX) and Walt Disney (NYSE:DIS) also made strong subscriber gains in the first quarter. People turned to video streaming amid the absence of live sports events on traditional television.

iQiyi sees revenue growing up to 8.0% in Q2

For the second quarter, iQiyi expects its revenue to be $1.02 billion–$1.08 billion, which represents an increase of up to 8.0% YoY. The Chinese economy has been reopening following pandemic shutdowns. Many companies expect their businesses to rebound.

Finally, iQiyi’s mixed earnings results caused its stock to fall 4.5% in extended trading on Monday. The stock gained 2.12% in regular trading and closed at $18.33. Baidu stock has risen 26% from its pandemic lows. However, the stock is still down 13% for the year. Baidu stock has fallen 15% for the year, while JD.com (NASDAQ:JD) and Alibaba stocks have risen 58% and 1.50% for the year, respectively. At this point, iQiyi stock trades at a 33% discount to its 52-week peak of $27.50.

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