IQiyi Tumbles 6% in Trading After Bernstein Slaps "Underperform"

As a pre-IPO prediction proved correct, and China’s Netflix initiated a fundraising just eight months after going public, its stock has been on a continuous slide since June.

Anna Vodopyanova
    Jan 14, 2019 11:41 AM  PT
IQiyi Tumbles 6% in Trading After Bernstein Slaps
author: Anna Vodopyanova   

Shares in iQiyi Inc. (Nasdaq: IQ) dropped 6 percent by noon Monday to $16.80 per American depositary share after an analyst at Sanford C. Bernstein & Co. initiated coverage of China's Netflix-style platform at "underperform."

The analyst set the target price of iQiyi, which is controlled by Chinese search engine giant Baidu Inc. (Nasdaq: BIDU), at $11 per share, a discount of 38 percent from Friday's close of $17.82.

IQiyi, which became publicly traded in New York in March and raised $2.3 billion by selling 125 million shares at $18 apiece, reached its peak of $46.23 per ADS on the stock market in June and has been on a slide since. 

Prior to the company's debut on Nasdaq, former Bernstein analyst Bhavtosh Vajpayee said in a note to clients, "iQiyi may need circa $16 billion of new capital, in equity or debt. The upcoming IPO is merely a curtain raiser to its likely continued appetite for funding. Brace for it!"

And Vajpayee's forecast proved right. In the months after its initial public offering, iQiyi announced a series of expansions. Among them were launching an online wallet, "Change Plus," acquiring a domestic game developer Skymoons, and creating a sports app.

In late November, the platform announced that it would sell $500 million in convertible notes as it sought to raise fresh capital without directly tapping the equity markets. It said it aimed to "expand and enhance its content offerings, to strengthen its technologies, and for working capital and other general corporate purposes." A few days later, it closed an increased offering of $750 million of convertible senior notes due December 2023.

Although the company has seen rapid growth over the past year, it continues to confront a string of losses that appear to be spooking investors. In its most recent filing, iQiyi said its revenue jumped nearly 50 percent to $1 billion for the three months ended Sept. 30 compared with a year earlier. 

The company's operating loss, however, widened to $377 million, representing a loss margin of 37 percent compared with a margin of 23 percent in the year-ago period. Overall, its net loss attributable to the company was $457.3 million, or 63 cents per fully diluted American depositary share, nearly three times larger than the loss a year earlier. 

The head of iQiyi, Yu Gong, has previously said that the short-term stock volatility does not worry him. Instead, the company focuses on its business plan.

"Most of the time, the stock price is not related to how well your company performs, or at least its short-term performance," Gong told CapitalWatch in May. "For the long term, the fluctuation of the stock price won't affect our company's business plans or business model."

He added, "Our industry is still in the early stages of expanding, not yet mature. We still have a lot to do, a lot to achieve."