IQ Stock: Will the Netflix of China Rally Toward Higher Prices in 2019?

IQ Stock: Will the Netflix of China Rally Toward Higher Prices in 2019?
iStock.com/demaerre

IQ Stock Forecast

The way the media works these days, we’re always looking for “the next so-and-so” or the “Uber of whatever.” It’s easy to get bored of the noise and start to discount all these blustering proclamations as little more than hype. With that said, how do we approach IQIYI Inc (NASDAQ:IQ), the “Netflix of China?”

More importantly, what does the IQ stock forecast for 2019 look like? In my mind, it could very easily hit its $40.00 high again this year, seeing IQ stock roughly gain 100%. But there’s a big caveat to go along with that optimistic outlook.

First, let’s do a quick overview of what you would be getting into if you were to invest in IQ stock.

The streaming service is the largest in China, with about 500 million monthly active users. (Source: “India’s Eros Now Signs Licensing Deal With Chinese Video Giant iQiyi,” The Hollywood Reporter, September 10, 2018.)

Advertisement

This makes it among the largest streaming companies in the world. With numbers like that, it’s easy to see why the company is often called the “Netflix of China.”

But there are a few important differences. The first is that Netflix, Inc. (NASDAQ:NFLX) is a subscription-only streaming service, so every customer is a steady, recurring source of revenue.

iQiyi, on the other hand, has both a subscription and ad-based revenue model. This means that each individual user isn’t quite as valuable as a Netflix subscriber.

Furthermore, Netflix has an astronomical valuation because it always has the ability to begin incorporating ads should it need another source of revenue. While this likely won’t happen for a long time—if ever—it is an important failsafe that could help boost revenue should the company ever need it. IQ stock doesn’t have that luxury.

Going in its favor, however, is that IQ stock operates in China—a semi-closed market that competitors like Netflix are unable to operate within due to the government’s stringent censorship.

Now that doesn’t mean iQiyi has no competition—you may have heard of other streaming service operators in China like Tencent Holdings Ltd (OTCMKTS:TCEHY, HKG:0700) and Alibaba Group Holding Ltd (NYSE:BABA)—but it does mean that outside giants like Netflix and YouTube do not currently pose a threat to the company’s dominance in China.

With a market that has a semi-captive audience and few threats from international industry titans, it’s easy to see why the IQ stock forecast for 2019 could entail a doubling of the company’s value.

After all, it has soared by 41.55% over the past month, with consistent trading volume speaking to a prolonged, steady growth, rather than a quick surge that can often lead to a correction.

Chart courtesy of StockCharts.com

But the reason the company has so much potential—its prominence in the Chinese market—is also the very same reason that we need to be wary of what 2019 will hold for IQ stock.

With the potential for a U.S.-China trade war simmering beneath the surface and fears of an economic slowdown gaining traction among some analysts, should the Chinese economy falter this year, expect the IQ stock forecast for 2019 to take a radical turn.

If, conversely, the Chinese economy holds strong, then I fully expect to see IQ stock reach its former glory at some point this year.

IQ Stock IPO

Speaking of former glory, let’s go over the brief history of the company’s presence on the Nasdaq, starting with the IQ stock initial public offering (IPO).

The company hit the markets with a whopping market cap of $13.0 billion and began trading at $15.55 a share.

A few short months later, the successful IQ stock IPO saw the company reach as high as $40.00, seeing massive gains in a very short amount of time.

But, as is often the case with these meteoric rises, a fall was in order. The company shot back down to earth and was trading below its IPO price as recently as late December.

With that capricious start behind it, however, I believe now is the time that iQiyi stock can finally begin registering serious, long-term gains.

Again, a lot of the company’s future has to do with the Chinese economy. While I believe that streaming services are generally pretty insulated from economic downturns due to their low costs, it’s still going to factor into the company’s outlook, not to mention investor sentiment.

It’s also worth noting that iQiyi derived from Baidu Inc (NASDAQ:BIDU), the massive $60.0-billion Chinese technology company. Being a Baidu spinoff has a variety of perks, not least of which is all the resources that IQ stock can tap into in order to improve its service.

Why IQ Stock Could Reach $40.00 in 2019

We’ve got the good projections and the bad projections concerning IQ stock out of the way, so let’s get to the cold facts now.

The company’s latest quarterly report was a bit of a downer.

Revenue jumped by 48% compared to 2017 for the third quarter of 2018. Operating losses more than doubled, however, compared to the year before, while net losses almost tripled. (Source: “iQIYI Announces Third Quarter 2018 Financial Results,” iQiyi Inc, October 30, 2018.)

The company did see its subscriber base balloon to 80.7 million, with over 98% of them being paying subscription members. That’s good for a year-over-year growth of 89%. Subscriber growth is probably the most important metric for iQiyi at this point in its development.

The high losses disappointed analysts and continued the company on its downward spiral to its nadir in late December. But there’s a lot to like about the report, warts and all.

The company showed very strong growth in both revenue and subscribers. While it’s still a ways away from being highly profitable, it’s worth noting that many tech companies start off with huge losses in their early years. iQiyi has only been around since 2010, so it is still a relatively young company.

It makes sense that spending will increase in order to stake out its claim in a crowded and highly competitive market. That is to say that these losses don’t overly concern me.

The flip side is that investors were obviously troubled by the report, and unless the company can turn it around by its next filing (doubtful), we could see it take another hit when it next files. But those losses will likely be temporary, with IQ stock having the ability to bounce back and push forward to higher gains in 2019.

Should You Consider IQ Stock for the Long Term?

Short-term financial reports aside, as long as it can keep its growth rate steady (and China has millions of more customers to tap into), IQ stock has a great chance to grow into one of the better long-term picks around.

The company is a prime player in a developing market with hundreds of millions of potential customers.

On top of that, the market is semi-protected from outside intrusion, giving it a distinct competitive advantage.

IQ stock is also benefiting from signing deals with international content producers to help expand its appeal.

Overall, if the company can maintain steady growth for the next several years, this could be a great long-term play.

Analyst Take

I’m not going to mislead you here and say that IQ stock is a sure thing. After all, no stock ever is.

But in this case, there are a number of question marks. You have intense competition within China, uneven analyst support, and a potentially wavering Chinese economy.

Those are all big problems that could profoundly impact IQ stock.

With that said, iQiyi has the ability to counter all three, and there is great potential locked away within IQ stock.

For investors willing to take a bit of a risk, there’s a lot to like about the company, and the potential to double your investment in 2019 is very real.