Why This iQIYI Analyst Is Turning Bullish On Chinese Streaming Stock

Following several years of investing in original content, IQIYI Inc - ADR IQ seems to have enough content diversification to fully differentiate itself from competition, according to KeyBanc Capital Markets.

The iQIYI Analyst: Hans Chung upgraded iQIYI from Sector Weight to Overweight with a $30 price target. 

The iQIYI Thesis: With increasing high-quality content, the company’s churn is expected to improve, helping it return to sustainable subscription revenue growth, Chung said in the upgrade note.

“Negative impact by price increase in Nov. 2020 is largely behind; instead, retention rates for both existing and new subscribers are coming in higher,” the analyst said. 

iQIYI is also likely to benefit from the cap on actor and actress salaries, “alongside competition for content also becoming more rational,” which should lead to content costs remaining “flattish” in the near to medium term, he said.

“Given improving membership monetization with flat growth in content cost in the NT-MT, we now expect IQ to achieve profitability in 2022 and to further expand operating margin to 4% in 2023.”  

IQ Price Action: Shares of iQIYI were down 1.61% at $23.50 at last check Tuesday. 

(Photo: "The Legend of White Snake" via IMDb)