On Friday, BofA Securities updated its outlook on iQIYI (NASDAQ:IQ) shares, increasing the price target to $6.20 from the previous $5.50 while keeping a Buy rating on the stock.
The adjustment comes after iQIYI reported revenues in line with expectations for the first quarter and demonstrated better profit growth.
The analyst from BofA Securities noted that iQIYI has ceased the disclosure of the number of paying subscribers and Average Revenue per Member (ARM) starting from the first quarter of 2024, a move similar to Netflix’s decision to stop disclosing subscriber numbers in the first quarter of 2025.
Despite forecasting a small sequential decline in subscribers for iQIYI in the first quarter of 2024, compared to Tencent (HK:0700) Video's one million quarter-over-quarter decline, the outlook for the second quarter remains cautious.
This caution is attributed to weak traffic data observed by Questmobile, with iQIYI experiencing a year-over-year decrease in active users and daily time spent during the first quarter and April of 2024 due to a lack of popular content.
The competitive landscape is also highlighted as a factor, with intense competition expected in the first half of 2024 as rivals release IP-based dramas.
However, iQIYI is anticipated to launch more content during the summer, which is expected to help the business rebound in the second half of the year.
The analyst also pointed out that iQIYI's profit trend is largely on track, supported by cost control measures and operational leverage from better ARM growth.
Despite lowering the revenue forecast for the second quarter of 2024 and the full years of 2024/2025, earnings estimates remain largely unchanged due to improved operational leverage and profit growth.
The raised price objective to $6.20 is primarily attributed to a higher projected P/E ratio of peers, which has been adjusted to 15 times from 13 times for the year 2024, and a 12 times adjusted P/E for 2024 from the previous 10 times, amid favorable market conditions.
The firm reiterates its Buy rating on iQIYI, citing the positive profit trend and the expectation that top content releases in the second half of 2024 will drive a rebound in subscriber growth.
InvestingPro Insights
As iQIYI (NASDAQ:IQ) navigates a competitive entertainment landscape and works towards a content-driven rebound in the second half of 2024, real-time data and insights from InvestingPro provide a more granular look at the company's financial health and stock performance. With a market capitalization of $5.56 billion and a forward P/E ratio of 18.26, iQIYI appears to be valued in line with its earnings potential. The company's revenue growth over the last twelve months stands at 9.91%, indicating a solid top-line expansion. Additionally, the stock has seen a significant return over the last week, month, and three months, with respective total returns of 18.4%, 38.85%, and 61.28%.
An InvestingPro Tip worth noting is that iQIYI operates with a moderate level of debt, which could be a sign of prudent financial management. However, it's important to consider that two analysts have revised their earnings estimates downwards for the upcoming period, suggesting potential headwinds. For investors looking to delve deeper into iQIYI's financials and stock performance, InvestingPro offers several additional tips. By using the coupon code PRONEWS24, investors can get an additional 10% off a yearly or biyearly Pro and Pro+ subscription, gaining access to insights such as the company's shareholder yield and the implications of its current RSI indicating an overbought territory.
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