CLSA upgrades iQIYI stock rating to Outperform on regulatory outlook

Investing.com - CLSA has upgraded iQIYI (NASDAQ:IQ) from Hold to Outperform and raised its price target to $2.45 from $1.70 ahead of the company’s second-quarter earnings report. The stock, currently trading at $2.33 with a market capitalization of $1.92 billion, appears slightly undervalued according to InvestingPro Fair Value analysis.

The Chinese streaming platform is scheduled to announce its second-quarter 2025 results on August 20. With a current gross margin of 24.05% and four analysts recently revising their earnings estimates upward, according to InvestingPro data, CLSA expects total revenue to decline 11% year-over-year to 6.6 billion yuan, with membership revenue dropping 9% year-over-year to 4.1 billion yuan due to reduced premium content during the low season.

Advertising revenue likely fell 13% year-over-year during the quarter on weak demand for performance ads during the 618 shopping period, though brand advertising revenue may have recovered quarter-over-quarter thanks to popular variety shows like Kings of Comedy.

Content costs are expected to remain flat quarter-over-quarter at 3.79 billion yuan, which would pressure gross profit margin to 20.6%, down 3 percentage points year-over-year and 4.2 percentage points quarter-over-quarter. With a current ratio of 0.46, indicating tight liquidity, CLSA projects second-quarter adjusted operating profit of 80 million yuan, significantly lower than the 501 million yuan in the same period last year. Discover more insights about iQIYI’s financial health and 12 additional ProTips with InvestingPro.

The upgrade reflects CLSA’s removal of a 20% valuation discount due to potential regulatory relaxation in China, while maintaining its 2025 adjusted operating profit forecast at 1.08 billion yuan with expectations for sequential improvement supported by upcoming drama and film releases. The stock has shown strong momentum with a 25.95% return over the past week, suggesting growing investor confidence in the company’s prospects.

In other recent news, iQIYI reported first-quarter revenue for 2025 that exceeded analyst expectations, although earnings did not meet forecasts. Despite the revenue beat, the company faces challenges, with its management forecasting flat revenue for the second quarter, indicating a potential year-over-year decline of 3-4%. CLSA analysts downgraded iQIYI’s stock rating from Outperform to Hold, lowering the price target to $1.70 from $2.40, following the company’s financial performance. Meanwhile, Citi raised its price target for iQIYI to $2.30 from $2.00, maintaining a Buy rating despite reducing revenue expectations for the second quarter of 2025 due to content schedule delays and weak advertising performance. Benchmark analyst Fawne Jiang maintained a Hold rating, acknowledging the company’s growth challenges but noting early positive signs from strategic content diversification efforts. iQIYI’s adjusted EBIT for the first quarter increased by 13% quarter-over-quarter, surpassing estimates by 9%. However, the company expects adjusted EBIT to break even in the second quarter, falling short of the Visible Alpha consensus. These developments reflect iQIYI’s ongoing efforts to adapt to market conditions and shifting user preferences.

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