Spencer Platt
JPMorgan downgraded iQIYI (NASDAQ:IQ) to Neutral from Overweight noting that it sees limited catalysts to drive a re-rating.
The firm also lowered the price target on the shares of the Chinese online entertainment service, which is a unit of Baidu (NASDAQ:BIDU), to $5 from $10.
The analysts said that are positive on iQiyi's capability to increase its subscription price, monthly average revenue per membership, or ARM, was RMB15.5 in the third quarter and the company expects a 12% Compound annual growth rate, or CAGR, in 2024- 25; and generate a healthy profit.
However, the analysts noted that they are turning more cautious as volatility in the number of memberships seems higher than they expected, which makes visibility of membership revenue growth lower than other digital entertainment platforms (such as Tencent Music Entertainment (TME) in the online music vertical, whose music subscription revenue saw a 28% CAGR in 2021-23).
The analysts are also cautious as iQiyi's (IQ) advertising revenue (brand ads driven) seems to be more impacted compared to other performance ads driven content platforms (such as Kuaishou) amid mediocre consumption sentiment.
Thus the analysts have reduced their 2024 revenue/profit estimate by 4%/29% reflecting a more cautious view on subscription/ad revenue growth and lower operating leverage.
The firm now forecast iQiyi revenue/profit to grow 3%/9% in 2024.
iQIYI (IQ) has a Buy rating at Seeking Alpha's Quant Rating system, which consistently beats the market. Meanwhile the Seeking Alpha authors' (2 authors in this case) average rating is also Buy, and so is the average Wall Street analysts' rating, Buy.