Why IQIYI Inc (NASDAQ: IQ) stock is crashing

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IQIYI Inc (NASDAQ: IQ) stock fell over 9.9% on 31st October, 2018 (As of 10:48 AM GMT-4; Source: Google finance) after the company reported a wider-than-expected third-quarter loss. iQiyi said it lost RMB3.1 billion ($457.3 million) in the quarter, compared with a loss of RMB1.1 billion in the third quarter of 2017.

IQ in the third quarter of FY 18 has reported the loss of 63 cents an ADS, missing the analysts’ estimates for the loss of 42 cents an ADS, as per Analysts polled by FactSet. The company had reported the adjusted revenue growth of 48 percent to $1 billion in the third quarter of FY 18, which is in line with the analysts’ estimates for revenue of $1 billion. The number of total subscribing members was 80.7 million as of September 30, 2018, over 98% of whom were paying subscribing members. This compares to 42.7 million of total subscribing members as of September 30, 2017, up 89% year over year.

Moreover, Operating loss was RMB2.6 billion (US$377.3 million) and operating loss margin was 37%, compared to operating loss of RMB1.1 billion and operating loss margin of 23% in the same period in 2017. Income tax benefit was RMB6.1 million (US$0.9 million), compared to income tax expense of RMB0.8 million in the same period in 2017. As of September 30, 2018, the Company had cash, cash equivalents and short-term investments of RMB9.7 billion (US$1.4 billion).

Additionally, Membership services revenue was RMB2.9 billion (US$415.3 million), representing a 78% increase from the same period in 2017. The increase was primarily attributable to the robust growth in the number of subscribing members, driven by our premium content, especially our self-produced blockbuster titles, as well as various operational initiatives during the quarter. Online advertising services revenue was RMB2.4 billion (US$348.9 million), representing a 4% decrease from the same period in 2017. The decrease was primarily due to the impact of FIFA World Cup and recent regulation headwinds, which resulted in diverted or tightened advertiser budget. Content distribution revenue was RMB834.6 million (US$121.5 million), representing a 220% increase from the same period in 2017. The significant increase was primarily attributable to a number of premium content titles that we distributed during the quarter.

For the fourth quarter, iQiyi said it expects revenues between RMB6.48 billion, or $943.5 million, and RMB6.75 billion, or $982.8 million, a 43% to 49% increase from the same period in 2017.

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