Chinese Streaming Service iQIYI Has Subscription Revenue Opportunity, Oppenheimer Says In Bullish Initiation

iQIYI Inc IQ is among the largest video streaming service providers in China, and investors seem to be underestimating its ability to lift subscription fees, according to Oppenheimer.

The iQIYI Analyst

Bo Pei initiated coverage of iQIYI with an Outperform rating and $23 price target.

The iQIYI Thesis

iQIYI has more than 450 million monthly average users and over 105 million paying subscribers, Pei said in the Tuesday initiation note. (See his track record here.)

An Oppenheimer survey showed that 65% of respondents are willing to pay more for their video streaming subscriptions, the analyst said. The company’s rivals are expected to focus on profitability and begin raising their average revenue per user, he said.

With a surge in viewership due to the coronavirus outbreak in China, iQIYI may record strong subscriber additions in the first quarter of 2020, Pei said.

While the company’s online advertising business may suffer due to advertisers delaying or canceling marketing campaigns, these impacts are only temporary, the analyst said.

Content cost as a percentage of revenue is likely to decline from 77% in 2019 to 70% in 2020 and 60% in 2021, boosting iQIYI's margins, according to Oppenheimer.

IQ Price Action

Shares of iQIYI were trading 2.93% higher at $17.94 at the time of publication Tuesday.

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