CFRA raises iQIYI stock price target to $2.50, maintains hold

On Wednesday, CFRA analyst Siti Salikin updated the financial outlook for iQIYI (NASDAQ:IQ), increasing the price target to $2.50 from the previous $2.30, while keeping a Hold rating on the stock. The revised price target suggests a 2025 P/E ratio of 9.2x, compared to the current P/E of 10.92x, which remains significantly lower than the over 40x P/E ratio of its direct competitor, Netflix (NASDAQ:NFLX). According to InvestingPro analysis, iQIYI appears undervalued at current levels. This adjustment reflects CFRA’s expectation of a lower return on equity (ROE) for iQIYI, projected at around 12% in 2025, compared to Netflix’s 38%.

iQIYI’s financial performance in 2024 showed a decline, with revenues dropping 8.31% to CNY 29.2 billion, according to InvestingPro data. The decrease was seen across various segments, with membership revenue down by 12%, advertisement revenue falling by 8%, and content distribution and other revenues increasing by 8%. Earnings per ADR (EPADS) also saw a significant reduction, plummeting 60% to CNY 0.79. This decline in EPADS was attributed to a modest 5% decrease in content costs due to a lighter content slate, which failed to meet the analyst’s prior estimates.

Despite the downturn in 2024, CFRA maintains its 2025 EPADS forecast for iQIYI at CNY 1.90 and has set a 2026 EPADS target at CNY 2.00. The firm anticipates a return to revenue growth for iQIYI, estimating around a 4% increase in 2025. This expected growth is driven by a projected resurgence in membership revenue, thanks to the introduction of new premium content aligned with user preferences and a recovery in content slates. InvestingPro’s Financial Health Score of 2.73 (rated as GOOD) supports this positive outlook. Additionally, a predicted uptick in advertising spending within China is anticipated to bolster advertisement revenue.

The analysis by CFRA also suggests that improvements in average revenue per membership and reductions in content costs, potentially resulting from scale efficiency and the application of artificial intelligence, will contribute to an enhanced net margin for iQIYI in 2025. These factors are expected to play a significant role in the company’s financial recovery and performance in the coming years. For deeper insights into iQIYI’s valuation and financial health metrics, including 10+ additional ProTips and comprehensive analysis, explore the full Pro Research Report available on InvestingPro.

In other recent news, iQIYI reported its fourth-quarter 2024 earnings, which fell short of analyst expectations. The company posted an earnings per share (EPS) of -0.06 USD, missing the forecasted -0.04 USD, and recorded revenue of 6.61 billion USD, slightly below the anticipated 6.62 billion USD. Membership revenue declined by 15% year-over-year, and advertising revenue decreased by 13%, reflecting challenges in both segments. Despite these setbacks, Citi analysts have raised their price target for iQIYI to $3.10, maintaining a Buy rating, based on the company’s strategic plans for 2025. These plans include expanding their library of long-form video content and improving monetization strategies. Meanwhile, Tiger Securities maintained a Hold rating with a $2.50 target, noting that iQIYI’s revenue growth for 2025 will depend heavily on its content slate. The company anticipates a sequential rebound in membership revenue for the first quarter, driven by an improved content lineup. Management projects total revenue for the upcoming quarter to be approximately RMB 7.1 billion, representing a 7% increase quarter over quarter but a 10% decline year over year.

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