What happened
Shares of iQIYI (NASDAQ: IQ) fell on Friday after the Chinese streaming company reported its results in the second quarter. The headline numbers were mixed relative to analysts’ expectations, and iQIYI revealed an SEC survey emerged from a report by short-seller Wolfpack Research published in April. The stock was down 13% at 13.45 EDT.
So what
iQIYI reported revenue in the second quarter of 7.4 billion yuan, equivalent to $ 1 billion. This was up 4% in local currency from the previous year’s period, but it fell short of the analyst’s average estimate by about $ 60 million. The company ended the quarter with 104.9 million subscribers, with 4% up year over year.
Image Source: Getty Images.
Revenue for membership services increased 19% to $ 572.7 million, and revenue for content distribution increased 66% to $ 121.8 million. The online advertising services company did not fare so well, suffering a 28% decline in revenue to $ 224.5 million due to the macroeconomic environment in China.
iQIYI reported a net loss per US shareholder (ADS) of $ 0.28, beating analysts’ expectations by $ 0.21. For the third quarter, the company expects revenue growth between negative 6% and flat.
Well what
In April, Wolfpack Research published a report accusing iQIYI of fraud. Wolfpack claimed that the company had its user numbers by as much as 60% overcrowded and hidden by inflating expenses and content costs.
iQIYI disclosed along with its numbers in the second quarter that the SEC Enforcement Department requested certain financial and operating records dated January 1, 2018, along with documents related to certain acquisitions and investments mentioned by the Wolfpack report. The company works closely with the SEC.
While it’s too early to say whether fraud has occurred at iQIYI, the company would be the second Chinese high-flyer to emerge as fraud in recent months as Wolfpack’s claims unfold. Earlier this year, Luckin Coffee It found that a substantial portion of its sales were fabricated.
Including Friday’s decline, shares of iQIYI are now down about 12% after the start of the year.
