On Thursday, US Tiger Securities adjusted its outlook for iQIYI (NASDAQ: IQ), reducing the price target to $3.50 from a previous $4.00, while retaining a Hold rating on the stock. The revision follows the company's second-quarter results, which showed a year-over-year decline in total revenue by 5% and a 36% drop in non-GAAP EBIT.
The performance of different segments within iQIYI was mixed during the quarter. Membership revenue fell by 9% year-over-year, which was a slight improvement compared to the 13% decrease in the first quarter.
This change suggests a significant reduction in subscribers, estimated at over 15 million year-over-year. Advertising revenue also dipped by 2% year-over-year, contrasting with a 6% increase in the previous quarter. Brand advertising suffered a decline, although this was partly mitigated by growth in performance advertising.
The company's non-GAAP operating margin contracted to 7%, down from 10% in the same quarter of the previous year and 14% in the preceding quarter. Furthermore, iQIYI's operating cash flow experienced a downturn, landing at RMB 411 million, a decrease from RMB 886 million year-over-year and RMB 938 million quarter-over-quarter.
Looking ahead, iQIYI anticipates third-quarter total revenue to be around RMB 7.3 billion, which would represent a 9% decrease year-over-year or a 2% decline quarter-over-quarter. This forecast is 8% lower than the estimates by Tiger Securities and the consensus.
The expected non-GAAP operating income for the third quarter is projected to be between RMB 300 million to RMB 350 million, also falling short of both Tiger Securities' and consensus estimates.
Despite these challenges, iQIYI noted an improvement in operating metrics starting in July, although it will take time for these improvements to be reflected in the company's financial outcomes.
InvestingPro Insights
As iQIYI navigates through its financial challenges, the latest data from InvestingPro provides a snapshot of the company's current market standing. With a market capitalization of $2.96 billion and a price-to-earnings (P/E) ratio of 13.44, iQIYI is trading at a low earnings multiple, which may attract investors looking for undervalued stocks. The adjusted P/E ratio for the last twelve months as of Q1 2024 stands at an even more appealing 9.68.
Despite recent setbacks, iQIYI has shown a positive gross profit margin of 28.38% over the last twelve months as of Q1 2024, indicating a robust ability to control costs relative to revenues. Additionally, the company has managed an EBITDA growth of 8.42% during the same period. This financial health is further underscored by a fair value estimation of $4.67 by InvestingPro, suggesting potential upside from the previous close price of $3.08.
InvestingPro Tips highlight that iQIYI is a prominent player in the Entertainment industry and analysts predict the company will be profitable this year. However, it's worth noting that short term obligations exceed liquid assets, which may pose liquidity risks. For investors seeking a deeper analysis, there are 11 additional InvestingPro Tips available for iQIYI, offering a comprehensive understanding of the company's financial and market position.
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