Is IQIYI Inc (NASDAQ:IQ) a Baby Thrown Out with the Bathwater of Chinese Tariffs?

IQIYI Inc (NASDAQ:IQ) is an extremely interesting Chinese play right now. Chinese stocks with genuine growth (IQ has 53% on the top-line comped y/y on a quarterly basis) are quite interesting given the sharp capital outflows we have seen a consequence of the tariffs from the US. In addition, the company recently announced the launch of the Gehua Little Fruit Set Top Box, developed in partnership with Baidu, Inc. (BIDU, the leading Chinese language Internet search provider, and Beijing Gehua CATV Network Co., Ltd., a premier cable TV network in China.

According to the release, “The Gehua Little Fruit Set Top Box is an AI-integrated television box that provides viewers with an unprecedented experience of watching video content, combining the entirety of iQIYI’s on-demand online video content with BGCTV’s premium live cable TV and playback service. The historic partnership marks the first time that a traditional cable network in China has partnered with an internet company and viewers will enjoy iQIYI and BGCTV’s content on a device enhanced with Baidu’s sophisticated AI and speech recognition technology.”

IQIYI Inc (NASDAQ:IQ) bills itself as an innovative market-leading online entertainment service in China.

According to company materials, “Its corporate DNA combines creative talent with technology, fostering an environment for continuous innovation and the production of blockbuster content. iQIYI’s platform features highly popular original content, as well as a comprehensive library of other professionally-produced content, partner-generated content and user-generated content. The Company distinguishes itself in the online entertainment industry by its leading technology platform powered by advanced AI, big data analytics and other core proprietary technologies. iQIYI attracts a massive user base with tremendous user engagement, and has developed a diversified monetization model including membership services, online advertising services, content distribution, live broadcasting, online games, IP licensing, online literature and e-commerce etc.”

In addition, the company is battling some balance sheet hurdles, with cash levels struggling to keep up with current liabilities ($2B against $2.2B, respectively).

Moreover, iQIYI, Inc., together with its subsidiaries, provides online entertainment services under the iQIYI brand name in China. It operates a platform that provides a collection of Internet video content, including professionally-produced content licensed from professional content providers and self-produced content.

The company also operates movie theaters in China. In addition, it provides membership, content distribution, live broadcasting, and online gaming services. The company was formerly known as, Inc. and changed its name to iQIYI, Inc. in November 2017.

iQIYI, Inc. was incorporated in 2009 and is based in Beijing, China. iQIYI, Inc. is a subsidiary of Baidu Holdings Limited.


Relative Strength

As we discussed earlier, IQ recently announced the launch of the Gehua Little Fruit Set Top Box, developed in partnership with Baidu, Inc. (BIDU, the leading Chinese language Internet search provider, and Beijing Gehua CATV Network Co., Ltd., a premier cable TV network in China.

“iQIYI is delighted to join forces with Baidu and BGCTV in the production of the Gehua Little Fruit Set Top Box,” said Duan Youqiao, Senior Vice President at iQIYI. “We believe this new product will appeal to the diverse needs of an increasingly sophisticated consumer base, providing the most comprehensive live cable TV service, the best on demand video and the most advanced artificial intelligence.”

Even with that news, the action hasn’t really heated up in the stock, with shares moving net sideways over the past week. Of course, given the action in the rest of the market, sideways action is actually quite positive.

“Baidu is proud to announce that the Gehua Little Fruit Set Top Box is the first product to utilize our newly developed AI-enabled ‘DuerOS 3.0 For TV operating system,” said Ge Xingfei, Deputy General Manager of DuerOS Business Unit, SLG, Baidu. “This system allows viewers to accomplish any number of tasks with the ease of simply speaking to the device. The combination of the best video content from both iQIYI and BGCTV means the Gehua Little Fruit Set Top Box solves the problem within the traditional separation between live and on demand TV, providing the ultimate level of choice for at home viewing, with maximum convenience.”

IQIYI Inc (NASDAQ:IQ) managed to rope in revenues totaling $967.4M in overall sales during the company’s most recently reported quarterly financial data — a figure that represents a rate of top-line growth of 53.4%, as compared to year-ago data in comparable terms.

This is the type of growth investors will flock to if we see progress on China relations and a drop in recession potential.

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