To The Moon

$iQiyi Inc.(IQ)$ last reported earnings on 21 Nov 2023 before the market opened (BMO). IQ shares declined -9.2% the day following the earnings announcement to close at 4.75. Following its earnings release, 97 days ago, IQ stock has drifted -26.1% lower.

From the time it announced earnings, IQ traded in a range between 3.06 and 5.02. The last price (3.51) is closer to the lower end of range. IQ is expected to release earnings on Feb 28, 2024 before the market opens (BMO).

iQIYI has reported that there was a 470% increase in AI search usage during the Chinese New Year holiday period (Feb. 9 - Feb. 15). The viewing time of variety shows and the new drama release 'Always on the Move' soar by 175% and nearly 400%, respectively, during this period.

IQ have been trading on the decline over the past weeks, this is despite they are profitable, and there should be some competitive advantage of IQ over the U.S. streaming companies, as their AI would be much preferred. I think we should look at how IQ share price stacked up, and also its PE ratio against its peers.

Share Price vs Fair Value

What is the Fair Price of IQ when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model. IQ is trading below the Fair Value of the estimate calculated at $10.12.

This would mean that IQ is trading below fair value by more than 20%.

Key Valuation Metric

Which metric is best to use when looking at relative valuation for IQ? As IQ is profitable we use its Price-To-Earnings Ratio for relative valuation analysis.

For IQ we can also use its Price-To-Sales Ratio for relative valuation analysis. We can also use its Price-To-Book Ratio for relative valuation analysis, however this may not be useful for all companies.

Price to Earnings Ratio vs Peers

How does IQ's PE Ratio compare to its peers? IQ is good value based on its Price-To-Earnings Ratio (13.7x) compared to the peer average (51.8x).

Price to Earnings Ratio vs Industry

How does IQ's PE Ratio compare vs other companies in the US Entertainment Industry? IQ is good value based on its Price-To-Earnings Ratio (13.7x) compared to the US Entertainment industry average (18.3x).

Future Return on Equity

Future ROE: IQ's Return on Equity is forecast to be high in 3 years time (21.6%).

Summary

If we were to be too concerned about how iQIYI would do in the short term, we might not see much huge improvement to its share price. This is because China is still grappling with its economic downturn, though we are seeing recovery.

Question remain whether the recovery would continue, though the general public are now taking advantage of the short rally after the CNY holiday.

I would take a modest view on iQIYI potential, as the user subscription from other markets might help to push its earnings, because even though $Netflix(NFLX)$ do offer Chinese programs, but they are basically older and also not of much varieties.

Appreciate if you could share your thoughts in the comment section whether you think iQIYI would be able to provide a modest upside move after its earnings result.

@TigerStars @Daily_Discussion @Tiger_Earnings @TigerWire appreciate if you could feature this article so that fellow tiger would benefit from my investing and trading thoughts.

Disclaimer: The analysis and result presented does not recommend or suggest any investing in the said stock. This is purely for Analysis.