iQIYI (NasdaqGS:IQ) Valuation in Focus After Second Quarter Revenue Decline and Swing to Net Loss

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If you have been watching iQIYI (NasdaqGS:IQ) lately, the company’s latest earnings report might have you rethinking your next move. The streaming giant posted second quarter numbers showing a drop in both revenue and profitability, turning in a net loss after last year’s profit. Management attributed these declines to softer advertising demand and fewer fresh content releases, while also noting ongoing economic pressures that are squeezing the entertainment sector as a whole.

This dip comes as iQIYI has spent much of the past year balancing cost control with new investments in AI-driven content and international growth. Despite the financial setbacks, the company continues to claim leadership in drama streaming and points to membership growth in markets such as Brazil and Indonesia. Over the past year, shares have managed a 5% gain, though longer-term returns remain deep in the red. The modest bounce in the past month, with the stock up 18%, suggests some optimism but also highlights persistent swings in sentiment.

Now, with the share price rebounding from recent lows, the real question is whether investors are looking at a potential value play or simply responding to the risks that still lie ahead for iQIYI’s future growth.

Most Popular Narrative: 8.3% Overvalued

According to community narrative, iQIYI is currently trading above its estimated fair value. The stock is seen as modestly overvalued when compared to consensus forecasts for future earnings and margins, using a stated discount rate of 13.6%.

"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 a crackdown on password sharing are intended to improve member retention and attract new subscribers, supporting subscription revenue growth."

What are analysts really factoring into this narrative? Is it ambitious revenue acceleration, rapidly expanding earnings, or a bold margin leap that underpins this valuation story? Are you interested in understanding the financial levers that drive such a precise fair value estimate? Stay tuned to uncover the numbers and assumptions behind this intriguing valuation puzzle.

Result: Fair Value of $2.27 (OVERVALUED)

Have a read of the narrative in full and understand what's behind the forecasts.

However, persistent content challenges and declining subscriber revenue could quickly undermine the optimistic outlook. This highlights vulnerability in iQIYI’s growth projections.

Find out about the key risks to this iQIYI narrative.

Another View: Our DCF Model Offers a Different Perspective

While the community's narrative focuses on future earnings and industry multiples, the SWS DCF model takes another route by analyzing iQIYI’s cash flows to estimate value. This approach currently gives an opposing result and challenges previous assumptions. Could a different lens change your outlook?

Look into how the SWS DCF model arrives at its fair value.

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out iQIYI for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover undervalued stocks based on their cash flows. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Build Your Own iQIYI Narrative

If you want to dive deeper and come to your own conclusions, you can quickly analyze the numbers and shape your own story in minutes. Alternatively, you can simply do it your way.

A great starting point for your iQIYI research is our analysis highlighting 2 key rewards and 3 important warning signs that could impact your investment decision.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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