On Thursday, US Tiger Securities analyst Bo Pei revised the price target for iQIYI (NASDAQ:IQ), a company specializing in online entertainment services, reducing it to $2.50 from the previous $3.00. Despite the change, the analyst has opted to maintain a Hold rating on the stock. The revision comes as the stock trades near its 52-week low of $1.82, with a current price of $1.87. According to InvestingPro data, eight analysts have recently revised their earnings expectations downward for the upcoming period.
The adjustment comes as Tiger Securities recalibrates its projections in anticipation of iQIYI's fourth-quarter earnings report, scheduled for February 26, 2025. The firm has downgraded its forecast for the company's fourth-quarter membership revenue, attributing the decision to a lackluster content performance witnessed in the early part of the quarter.
On a more positive note, the analyst has increased the estimate for iQIYI's advertising revenue. This revision stems from the company's effective strategy in securing a share of year-end brand advertising budgets. Despite recent challenges, the company maintains attractive valuations with a P/E ratio of 10.9 and a substantial free cash flow yield of 16%.
In addition to these adjustments, Tiger Securities has also revised its expectations for iQIYI's financial performance. Both GAAP and non-GAAP net income estimates for the fourth quarter have been lowered. This change is due to an anticipated unrealized foreign exchange (FX) loss during the period in question.
The analyst's commentary sheds light on the rationale behind these revisions: "We are maintaining our HOLD rating but decreasing PT to $2.5 (was $3.0) as we fine-tune our estimates ahead of 4Q earnings. We are lowering our 4Q membership revenue estimate due to weaker content performance in the first half of the quarter.
However, we are raising our advertising revenue estimate, as the company successfully captured a portion of year-end brand advertising budgets. Additionally, we are reducing our GAAP and non-GAAP net income estimates to account for an unrealized FX loss in 4Q."
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In other recent news, Chinese online entertainment service iQIYI experienced a 10% year-over-year decline in total revenue in the third quarter of 2024, reporting RMB 7.2 billion. Despite this, the company maintained a positive operating cash flow for the 10th consecutive quarter and reported a non-GAAP operating income of RMB 369 million. iQIYI's membership services revenue decreased by 13% to RMB 4.4 billion, while advertising revenue saw a 20% decline to RMB 1.3 billion. However, distribution revenue counterbalanced these declines somewhat with a 52% increase to RMB 814 million.
Additionally, iQIYI's stock price target was revised by several analyst firms. Citi analysts, led by Alicia Yap, revised the price target for iQIYI shares to $2.80 from the previous target of $3.00, maintaining a Buy rating on the stock. CFRA also lowered its price target on shares of iQIYI from $2.50 to $2.30, while maintaining a Hold rating on the stock. BofA Securities reduced the price target to $3.60 from a previous $4.30, yet reaffirmed a Buy rating for the stock. Jefferies reduced the price target to $3.00 from the previous $3.80, maintaining a Buy rating for the stock.
As part of recent developments, iQIYI has initiated strategic shifts in its content strategy, focusing on mini and short dramas. The company has also seen membership revenue growth exceeding 40% in overseas markets such as Hong Kong, the UK, Brazil, and Australia.
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