Publish: February 24, 2020 by framestr
Netflix remains one of the most popular services on today’s web, drawing in millions of yearly users who generate billions of views – so many investors had their hopes up for iQiyi, the East Asian streaming service which has often been labeled the “Chinese Netflix” by its proponents. iQiyi’s market debut proved that the market isn’t yet sold on iQiyi, however; the company’s IPO reaped in more than $2 billion, but shares quickly plunged during trading, and investors have made it clear they’re shunning the streaming service for the foreseeable future.
Here are the need-to-know details behind iQiyi’s lackluster IPO, and what may be in store for the streaming service now that it’s being publicly traded.
While many had their hopes pinned on iQiyi’s (NASDAQ: IQ) performance in the market, believing that the company could offer an alternative to established Western streaming giants like Netflix, the market quickly soured on iQiyi after its initial debut. While the company’s IPO brought in at least $2.3 billion in capital, which will doubtlessly prove useful towards future expansion efforts, and ultimately valued the company at a hefty $12.6 billion, it’s shares were initially priced only in the mid-range, and subsequent trading saw them plummet by more than ten percent.
iQiyi, which is owned by Baidu, offered investors some 125 million U.S. depositary shares at the price of $18 each, though shares eventually closed down more than 13 percent. At one point, shares sunk to as low as $15.55 each. While the tech market has been relatively robust this year, with massive tech IPOs like Dropbox’s debut sucking up heaps of media attention, iQiyi’s relatively lackluster trading after its IPO could dampen investors’ spirits in the broader market’s health. Despite the setbacks facing iQiyi after its debut, however, the Chinese streaming service isn’t going anywhere anytime soon; its massive market valuation will still make it a force to contend with for some time, and established services like Netflix would be foolish to think iQiyi will be fading into the dustbin of history after its IPO.
iQiyi has had significant amounts of success raising money through private venture capital initiatives, too; after all, before it debuted on the market, it had already collected more than $1.9 billion as a private company. With capital like that behind it, iQiyi will likely be able to churn out spades of new content for some time, which is becoming one of the staples signs of success for today’s streaming services.
IPO filings iQiyi made with the SEC before its market debut illustrate a history of losses that could continue to weight it down, however; the company has reported net losses totaling $592 million from just last year alone, for instance, and while net revenues have been consistently growing, they’re not swelling fast enough to soothe the concerns of financial backers who are worried about the company’s long-term profitability. iQiyi’s filings also make it clear that the company has some serious concerns when it comes to its major competitors that investors should review before throwing their weight behind it.
iQiyi’s filings cut right to the chase when it comes to detailing the company’s ever-growing competitors; established tech companies like Tencent Video and Youku Tudou will be seriously competing with iQiyi in its domestic marketplace, and of course established Western streamers like Netflix won’t be ceding an inch of their turf to the Chinese newcomer without a fight, either. While robust competitiveness has often defined the tech industry, including in Botox treatment, and iQiyi has deep pockets to rely upon when it comes to financing future streaming endeavors, the company will need to address its recent history of sizable losses with more gusto if it’s to win over the market’s favor in the long-term.
Still, iQiyi has many things going for it, too; as the company’s prospectus illustrates, the Chinese entertainment industry in particular is thriving right now, and with tens of millions of Chinese citizens rising to join the ranks of the middle class every few years, it stands to reason that many content-hungry customers will be flocking to streaming services like iQiyi, which can better cater to Chinese demands that Western counterparts (who themselves enjoy monopolies in their home countries).
Nonetheless, the company needs to grow its userbase sooner rather than later if it’s to convince investors it’s worth their while; 50 million subscribers in China already is impressive, but unless iQiyi can reap in enough consumers to get out of the red soon, many financial analysts will likely shun the company as an unprofitable chain about the market’s neck. Keep a close eye on iQiyi’s net losses; if the Chinese streaming service doesn’t clean up its act soon, there’s little reason to believe it will last long against competitors like Tencent Video and Netflix.