It’s Not Too Late To Get Long IQ

It’s Not Too Late

Back on April 25th, Brad put together some solid bullet points regarding the recent IPO…..IQ. See his analysis below.

Since then prices chopped around but today have popped nicely higher. Prices are now +18% since we highlighted it.

There is more to go in our opinion.

Technically, a move towards $24.50 is well within reason based on simple Fibonacci projections using the current Elliott Wave count.

April 25th IQ Analysis

Traders,

The analysis below is from Brad. IQ reports after the bell today so price action could be pretty volatile….we will see.

There is no real angle from a technical perspective at present.

  • IQ recently went public in the U.S.
  • Challenging to obtain a precise valuation on a newly public company that is still losing money (very common with new IPO companies)
  • The valuation chiefly depends on the industry and company-specific analysis
The Industry:
  • Internet usage continues to grow in China
  • As of July 2017, there were 724 million mobile internet users in a country of 1.379 billion people; growth continues year over year
  • Video is the #4 top category of internet applications by total users
  • 80% of users’ time spent in online entertainment was spent on Internet video
  • Internet video industry spend was RMB 156.9B in 2016 and is expected to reach RMB 688.4B by 2022
  • The internet ad industry is expected to grow by 25.2% per year through 2022 (it was RMB 32.6B in 2016 and expected to reach RMB 125.8B in 2022)
The Company:
  • iQyiy’s business model is video content with ads or subscription-based services
  • The company creates original content and licenses content from others (including Netflix)
  • Content has won awards for quality
  • Growth numbers for iQiyi are significant: Membership revenues have grown from 18.7% of revenue in 2015 to 37.6% of revenues in 2017 (membership revenue is repeatable revenue for a firm and highly valuable)
  • Ad revenues have grown from RMB 3,399.9 million in 2015 to RMB 5650.4 million in 2016 to RMB 8158.9 million in 2017
Lastly, Baidu is the parent company of iQiyi, which gives it competitive know-how and business connections to continue to prosper. iQiyi is not dependent on the U.S. market and is not likely subject to potential trade restrictions between US and China
Competitors:
  • Tencent video and Alibaba’s Youku
  • The South China Morning Post in an article entitled Tencent Video, iQiyi In Race to Lead china’s Online Video Market says that iQiyi “already provides the most preferred combination of online video platforms watched by mainline viewers.”
Summary:
In a nutshell, this stock is about the growth of online video in China, a dominant market position, and quality content. The chances of outstanding long-term growth could be significant. 
Brad

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