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On Wednesday, Benchmark analyst Fawne Jiang maintained a Hold rating on iQIYI stock (NASDAQ:IQ), following the company’s report of its fourth-quarter and full-year 2024 financial results. iQIYI, a leading online entertainment service in China with a market capitalization of $2.4 billion, experienced a decline in revenue by 14% year-over-year and a 15% drop in membership during the same period. Despite these challenges, which contributed to an 8.3% revenue decline over the last twelve months, the company has seen some positive developments. InvestingPro analysis suggests the stock is currently undervalued, presenting a potential opportunity for investors.
iQIYI’s content releases, which had been on a downtrend, began to pick up towards the end of November 2024. This increase in content availability has led to growth in both subscriber numbers and the time users spend on the platform. Additionally, iQIYI has made progress with its mini-drama initiatives, now boasting over 10,000 titles in its content library. The company maintains a healthy gross profit margin of 24.9% and has demonstrated positive cash flow generation, with a free cash flow yield of 13%.
Looking forward, iQIYI’s management has expressed optimism for fiscal year 2025, particularly regarding its premium content pipeline, new membership tiering strategies for monetization, and advertising opportunities associated with the mini-drama series. These factors are expected to contribute to the company’s potential recovery and growth.
However, Benchmark’s analyst pointed out that the guidance for the first quarter of 2025 appears to be conservative, and there is limited visibility on the full-year 2025 outlook, which has led to a cautious stance. The firm believes that iQIYI’s path back to growth will be closely watched, with the sustainability of its growth strategy and its ability to compete in the market being crucial determinants for both analyst conviction and investor confidence.
In other recent news, iQIYI reported a challenging fourth quarter for 2024, with earnings per share (EPS) and revenue both missing analyst expectations. The company posted an EPS of -0.06 USD, below the forecasted -0.04 USD, and revenue reached 6.61 billion USD, slightly under the anticipated 6.62 billion USD. Revenue decreased by 14% year-over-year, with membership services and advertising revenue falling by 15% and 13%, respectively. Despite these setbacks, Citi analysts raised their price target for iQIYI shares to $3.10, maintaining a Buy rating, while CFRA and Tiger Securities both set their price target at $2.50 with a Hold rating.
CFRA anticipates a return to revenue growth for iQIYI in 2025, estimating a 4% increase driven by new premium content and a recovery in advertising spending. The firm also projects improvements in average revenue per membership and reductions in content costs due to scale efficiency and AI applications. Meanwhile, Tiger Securities noted that iQIYI’s content slate will play a crucial role in revenue growth for 2025, though forecasting remains challenging.
iQIYI’s management expects a sequential rebound in membership revenue for the first quarter of 2025, driven by an improved content slate. The company plans to expand its mini-drama portfolio and international presence, focusing on premium long-form video content and new monetization strategies. Analysts from Citi believe that despite uncertainties, iQIYI will maintain disciplined financial management to ensure a healthy cash flow for repaying convertible bond debt in the future.
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