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iQIYI

Will Expand Into Southeast Asia And Brazil With Mini Dramas And AI-driven Content

WA
Consensus Narrative from 19 Analysts
Published
November 24 2024
Updated
March 12 2025
Share
WarrenAI's Fair Value
US$2.55
7.7% undervalued intrinsic discount
12 Mar
US$2.35
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1Y
-41.3%
7D
0%

Key Takeaways

  • Expanding premium content and leveraging AI in production aim to boost user engagement, reduce costs, and enhance long-term earnings potential.
  • International expansion and redefined membership offerings focus on revenue growth, market diversification, and improved subscription retention.
  • Declining revenue across segments due to content challenges suggests potential risks in maintaining subscriber growth, advertising partnerships, and revenue diversification, impacting profitability.

Catalysts

About iQIYI
    Provides online entertainment video services in the People’s Republic of China.
What are the underlying business or industry changes driving this perspective?
  • iQIYI's strategy to expand its premium content offerings, especially in long-form videos, mini dramas, and female-oriented content, aims to increase user engagement and drive higher membership and ad revenues.
  • Investment in mini dramas, leveraging a growing user preference for short-content formats and enhanced monetization with an upgraded ad placement system, is expected to boost both user base and advertising revenue.
  • The company’s focus on international expansion, particularly in high-potential markets like Southeast Asia, the Middle East, Latin America, and Brazil, indicates significant potential for revenue growth and diversification.
  • Enhancement in membership benefits and reclassification of membership offerings to include more tailored services and crack down on password sharing aims to improve member retention and attract new subscribers, supporting subscription revenue growth.
  • Strategic use of AI in content production to improve efficiency and reduce costs, alongside an expanded digital asset library, targets long-term margin improvement and enhances the potential for improved earnings.

iQIYI Earnings and Revenue Growth

iQIYI Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?
  • Analysts are assuming iQIYI's revenue will grow by 2.3% annually over the next 3 years.
  • Analysts assume that profit margins will increase from 2.6% today to 6.6% in 3 years time.
  • Analysts expect earnings to reach CN¥2.1 billion (and earnings per share of CN¥2.3) by about March 2028, up from CN¥764.1 million today. However, there is a considerable amount of disagreement amongst the analysts with the most bullish expecting CN¥2.6 billion in earnings, and the most bearish expecting CN¥1.1 billion.
  • In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 12.0x on those 2028 earnings, down from 20.9x today. This future PE is lower than the current PE for the US Entertainment industry at 22.6x.
  • Analysts expect the number of shares outstanding to grow by 0.31% per year for the next 3 years.
  • To value all of this in today's terms, we will use a discount rate of 11.88%, as per the Simply Wall St company report.

iQIYI Future Earnings Per Share Growth

iQIYI Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?
  • Revenue declined 14% year-over-year in Q4, partly due to a lighter content slate, which could continue to impact earnings if not addressed with stronger and more consistent content offerings.
  • Membership revenue dropped 15% annually, primarily due to content issues, indicating potential challenges in subscriber growth and retention, affecting long-term revenue and profitability.
  • Online advertising revenue decreased by 13% year-over-year, highlighting risks in maintaining strong advertising partnerships and operational effectiveness, which could impact net margins.
  • Content distribution revenue fell by 20% annually, pointing to potential weaknesses in leveraging theatrical releases and partnerships, thereby impacting overall revenue diversification.
  • Heavy reliance on premium long-form content and its production could lead to financial strain if content fails to attract sufficient viewership, affecting both revenue and profit margins.

Valuation

How have all the factors above been brought together to estimate a fair value?
  • The analysts have a consensus price target of $2.547 for iQIYI based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $3.5, and the most bearish reporting a price target of just $1.79.
  • In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be CN¥31.3 billion, earnings will come to CN¥2.1 billion, and it would be trading on a PE ratio of 12.0x, assuming you use a discount rate of 11.9%.
  • Given the current share price of $2.3, the analyst price target of $2.55 is 9.7% higher.
  • We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

Warren A.I. is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by Warren A.I. are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that Warren A.I.'s analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Read more narratives

Analyst Price Target Fair Value
US$2.5
7.7% undervalued intrinsic discount
Future estimation in
PastFuture-18b31b20152017201920212023202520272028Revenue CN¥31.3bEarnings CN¥2.1b
% p.a.
Decrease
Increase
Current revenue growth rate
1.87%
Entertainment revenue growth rate
0.41%