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        iQIYI Q3 2023 Financial Report Review: Third-quarter Profit Exceeded Expectations

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        ETFWorldSavior wrote a column · 11/30/2023 17:27
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        On November 21st, iQiyi released its Q3 financial report. On the same day, J.P. Morgan commented on iQiyi's Q3 financial report, stating that the third-quarter profit exceeded expectations, mainly due to the strong growth of member services and advertising services and effective cost control.
        iQIYI Q3 2023 Financial Report Review: Third-quarter Profit Exceeded Expectations
        1. Valuation
        Stock Rating: Overweight
        Closing price (at the time of the preview release):$4.75 (November 21, 2023)
        Current closing price: $4.49 (November 29, 2023)
        J.P.Morgan target price: $10
        Source: Moomoo
        Source: Moomoo
        2. Key Points
        In the third quarter, iQiyi's revenue and net profit both saw year-on-year and quarter-on-quarter growth, mainly due to strong growth in member services and advertising services as well as cost control. Sustainable growth in average monthly revenue per paying user, further growth in brand and performance advertising, and prudent content and sales expense control are all contributing factors to the company's structural profit growth.
        J.P. Morgan has set a target price of $10 for iQiyi, based on a 2023 P/E ratio of 25 times. J.P. Morgan is optimistic about iQiyi's compound annual net profit growth rate of 49% from 2024 to 2025, and expects it to have great development potential in the future.
        The main business is shown in the following figure:
        Source: Moomoo-Revenue Breakdown
        Source: Moomoo-Revenue Breakdown
         3. Performance Outlook
        iQIYI Q3 2023 Financial Report Review: Third-quarter Profit Exceeded Expectations
        (1). Main performance in the third quarter.
        In the third quarter, iQiyi's revenue increased by 7% year-on-year and 3% quarter-on-quarter, in line with market expectations. Net profit increased by 232% year-on-year and 5% quarter-on-quarter, exceeding Bloomberg's expectations of 11%. The adjusted net profit margin increased by 5.3 percentage points year-on-year and 0.1 percentage point quarter-on-quarter, reaching a new high of 7.8%.
        Source: Moomoo-Income Statement
        Source: Moomoo-Income Statement
        Source: Moomoo-Income Statement
        Source: Moomoo-Income Statement
        (2). Growth in member services and online advertising performance.
        In the third quarter, iQiyi's main performance was driven by a 19% year-on-year growth in member services and a 34% year-on-year growth in advertising services. iQiyi's average monthly revenue per paying user reached RMB 15.5, a year-on-year increase of 12% and a quarter-on-quarter increase of 5%. In terms of cost control, content costs and sales expenses decreased by 2% year-on-year.
        Source: Moomoo-Operating Data
        Source: Moomoo-Operating Data
        4. Positive views
        J.P. Morgan's supporting factors for iQiyi include: 1) sustainable growth in average monthly revenue per paying user of only RMB 16; 2) further growth of brand advertising and performance advertising; 3) prudent control of content costs and sales expenses because the competition environment in China's long-form video market has become more moderate compared to the past. In the next few years, the expansion of average monthly revenue per paying user will become the main driving force for iQiyi's growth.
        5. Risks that need attention
        iQiyi's paying membership declined quarter-on-quarter in the third quarter, mainly due to a lack of blockbuster dramas. It is expected that the subscriber outlook for iQiyi will improve in the fourth quarter of 2023 with the launch of new blockbuster drama "Kunning Palace (宁安如梦)".
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