Rising Chinese Middle Class Will Drive On-Demand Streaming Boom

Key Takeaways

• iQIYI's multi-format, blockbuster content and expansion into premium and offline experiences are driving higher engagement, diversified revenue, and a lead in multiple entertainment segments.
  
• Regulatory changes and advanced AI adoption position iQIYI for faster growth, more resilient margins, and broad monetization opportunities beyond volatile ad cycles.
  
• Heavy reliance on the domestic market, rising content costs, high user churn, and fierce competition threaten profitability while global expansion faces compliance and regulatory headwinds.

Catalysts

Through its subsidiaries, provides online entertainment video services in the People’s Republic of China.

• While analyst consensus is already bullish about iQIYI's push into premium long-form and female-oriented content, these efforts are actually setting up a winner-take-most outcome as iQIYI now has consistent blockbusters across both drama and variety, is winning major industry awards, and dominates multiple viewership categories, positioning it for a structural leap in both subscriber ARPU and sustained ad premium over the next several years.
  
• Analysts broadly agree that mini dramas and short-form content are driving growth, but the actual user engagement, cross-format IP monetization, and demographic expansion seen this quarter signal that mini dramas could catalyze a rapid double-digit expansion in both overall user base and recurring revenues-far beyond what consensus assumes-with iQIYI set to evolve into a multi-format, IP-driven entertainment super-app.
  
• iQIYI's move into offline experience businesses and direct-to-consumer IP products capitalizes on rising middle class consumption and a strong domestic preference for local culture, setting the company up for high-margin ancillary revenue streams that can increasingly decouple financial results from volatile advertising cycles.
  
• New content regulations in China's video sector are meaningfully shortening approval cycles and boosting creative freedom, which is likely to drive both faster revenue recognition and more resilient earnings over the medium and long term as content risks fall, scheduling stabilizes, and simultaneous distribution with TV greatly expands monetization avenues.
  
• The combination of a rapidly growing middle class and accelerating digital connectivity in China and key overseas markets-paired with iQIYI's leading AI-driven content production and recommendation systems-creates a powerful network effect, priming the company for industry-leading operating leverage and outsized net margin expansion as on-demand streaming supplants traditional TV.

iQIYI Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on iQIYI compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming iQIYI's revenue will grow by 4.8% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 0.3% today to 8.9% in 3 years time.
• The bullish analysts expect earnings to reach CN¥2.8 billion (and earnings per share of CN¥3.1) by about August 2028, up from CN¥88.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 11.7x on those 2028 earnings, down from 182.9x today. This future PE is lower than the current PE for the US Entertainment industry at 36.4x.
• Analysts expect the number of shares outstanding to grow by 0.09% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 12.97%, as per the Simply Wall St company report.

iQIYI Future Earnings Per Share Growth

Risks

• iQIYI remains heavily dependent on the domestic Chinese market for the majority of its revenues, which exposes the company to concentrated risks from shifts in consumer spending during China's macroeconomic slowdown and leaves long-term revenue growth vulnerable to regulatory or competitive pressure at home.
  
• Content production and acquisition costs are likely to keep rising as iQIYI competes for top-tier original movies, dramas, and variety shows, and while there are attempts to manage costs, failure to grow its subscriber base or meaningfully raise ARPU could lead to margin compression and limit future earnings expansion.
  
• Even with international expansion showing strong momentum in several regions, ongoing global concerns around data privacy, censorship, and intensifying geopolitical tensions could cap further growth and raise compliance costs, which would hinder iQIYI's ability to diversify revenues and improve its international earnings potential.
  
• Increasing competition from short-form video, livestreaming platforms, gaming, and larger tech giants like Tencent Video and Alibaba's Youku may drive up subscriber acquisition costs, raise user churn, and force more aggressive pricing or content investments, all of which threaten net margins and revenue growth.
  
• Persistently high user churn rates and challenges converting free users to paying subscribers remain structural issues for iQIYI, as evidenced by declining membership revenue in the reported quarter, which may make it difficult to meaningfully lift ARPU or significantly enhance long-term profitability.

Valuation

• The assumed bullish price target for iQIYI is $3.33, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of iQIYI's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $3.33, and the most bearish reporting a price target of just $1.0.
  
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be CN¥31.8 billion, earnings will come to CN¥2.8 billion, and it would be trading on a PE ratio of 11.7x, assuming you use a discount rate of 13.0%.
  
• Given the current share price of $2.35, the bullish analyst price target of $3.33 is 29.4% 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.