Shares of Chinese streaming service iQiyi plummeted in night trading in the US after it announced that the Securities and Exchange Commission (SEC) has launched a probe into the company.
The SEC investigation was commissioned in April by a report by Wolfpack Research, which describes itself as an “activist research and due diligence company.” In that report, Wolfpack accused iQiyi of fraud and inflating its numbers.
iQiyi said the SEC “is seeking the production of certain financial and operating records dated January 1, 2018, as well as documents related to certain acquisitions and investments identified in a report released by short-selling firm Wolfpack Research in April. 2020. “
The Netflix-style streaming giant also said it had “engaged professional advisers to conduct an internal review on some of the key allegations” in the Wolfpack report.
Wolfpack Research claims that iQiyi inflated its 2019 revenue by about 8 billion yuan ($ 1.13 billion) to 13 billion yuan ($ 1.98 billion) – or between 27% and 44%. Wolfpack also claimed that the streaming company has too many user numbers and expenses.
Shares of Nasdaq-listed iQiyi fell about 18% in extended trading, but squeezed some of those losses. The company was down 12.36% after the end of the trading period after hours.
Yu Gong (center), founder and CEO of China-based iQiyi (IQ), runs the Opening Bell on Nasdaq MarketSite in Times Square with staff and investors in celebration of its initial public offering (IPO) on March 29, 2018 in New York City.
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The SEC probe into iQiyi comes amid growing scrutiny of US-listed Chinese companies following the Luckin Coffee scandal earlier this year.
China’s Luckin Coffee has admitted to manufacturing sales numbers for 2019. The company was removed from the Nasdaq later in June.
In May, the U.S. Senate passed a bill that would increase auditing of Chinese companies on Wall Street, with the threat of write-offs if they fail to comply.
In 2018, iQiyi was ousted from Chinese search giant Baidu in a U.S. IPO that raised more than $ 2.2 billion. Baidu, which is also mentioned in the US, has a majority stake in iQiyi. When Baidu faced increased competition in China – in key products such as search and advertising – iQiyi became an important part of its growth prospects.
In the second quarter, iQiyi membership revenue grew 19% year-over-year, while online advertising revenue decreased by 28% year-on-year, according to Baidu’s earnings report.
Baidu shares were down 7% on Thursday with extended hours as a result of the SEC probe into iQiyi.
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