On Tuesday, HSBC (LON:HSBA) downgraded iQIYI, Inc. (NASDAQ:IQ) stock from Hold to Reduce and lowered the price target to $3.00 from the previous $4.70. The firm anticipates that iQIYI will release its second-quarter results in late August and has adjusted its expectations based on recent developments.
The new forecast suggests a decline in revenue for the streaming company, with projected figures now standing at approximately 7.4 billion yuan. This represents a 5% year-over-year decrease compared to the earlier estimate of 7.7 billion yuan.
The revised revenue outlook is primarily attributed to a weaker-than-expected performance in drama and variety show offerings. The analysis indicates that subscription revenue is expected to fall by 9% year-over-year, which is partly due to an estimated 18% year-over-year decline in the number of subscribers. However, this negative impact is slightly mitigated by an anticipated 10% increase in average revenue per user (ARPU).
The advertising segment also seems to be under pressure, with expectations of a 3% year-over-year decline. This is in line with the broader challenges faced by the company, as outlined by HSBC. The anticipated drop in revenues is expected to have a direct impact on the company's margins and operational leverage.
As a result of these factors, HSBC forecasts a decrease in non-GAAP operating profit for iQIYI, with projections now set at approximately 519 million yuan, down from the prior estimate of 814 million yuan. This adjusted forecast reflects the firm's concerns about iQIYI's financial performance in the upcoming quarterly report.
In other recent news, iQIYI, a leading online entertainment service in China, has activated a repurchase option for its 4.00% Convertible Senior Notes due 2026. This option allows note holders to sell back to the company at a set price, with an outstanding principal amount of approximately $395.6 million.
Meanwhile, BofA Securities has increased its price target for iQIYI shares to $6.20, maintaining a Buy rating, citing better profit growth despite a cautious outlook for the second quarter due to weak traffic data and intense competition.
In its First Quarter 2024 Earnings Conference Call, iQIYI reported a record non-GAAP operating income of RMB1.1 billion, and a surge in revenue from performance advertising and content distribution.
The company also highlighted its strategic focus on original programming and technological innovation in advertising. The company's decision to stop disclosing subscriber numbers, similar to Netflix (NASDAQ:NFLX)'s move, was also noted.
iQIYI's plans for future growth include targeting underserved user groups and improving content quality, while focusing on premium content, operational efficiency, and technological innovation.
The company is also looking to expand its global footprint through international markets and partnerships. These recent developments underline iQIYI's commitment to adapt to changing market dynamics and enhance user experience.
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