iQIYI Q3 2023 Financial Report Review: Third-quarter Profit Exceeded Expectations

On November 21st, iQiyi released its Q3 financial report. On the same day, J.P. Morgan commented on iQiyi's Q3 financial report, stating that the third-quarter profit exceeded expectations, mainly due to the strong growth of member services and advertising services and effective cost control.

Stock Rating: Overweight

Closing price (at the time of the preview release):$4.75 (November 21, 2023)

Current closing price: $4.49 (November 29, 2023)

J.P.Morgan target price: $10

In the third quarter, iQiyi's revenue and net profit both saw year-on-year and quarter-on-quarter growth, mainly due to strong growth in member services and advertising services as well as cost control. Sustainable growth in average monthly revenue per paying user, further growth in brand and performance advertising, and prudent content and sales expense control are all contributing factors to the company's structural profit growth.

J.P. Morgan has set a target price of $10 for iQiyi, based on a 2023 P/E ratio of 25 times. J.P. Morgan is optimistic about iQiyi's compound annual net profit growth rate of 49% from 2024 to 2025, and expects it to have great development potential in the future.

In the third quarter, iQiyi's revenue increased by 7% year-on-year and 3% quarter-on-quarter, in line with market expectations. Net profit increased by 232% year-on-year and 5% quarter-on-quarter, exceeding Bloomberg's expectations of 11%. The adjusted net profit margin increased by 5.3 percentage points year-on-year and 0.1 percentage point quarter-on-quarter, reaching a new high of 7.8%.

In the third quarter, iQiyi's main performance was driven by a 19% year-on-year growth in member services and a 34% year-on-year growth in advertising services. iQiyi's average monthly revenue per paying user reached RMB 15.5, a year-on-year increase of 12% and a quarter-on-quarter increase of 5%. In terms of cost control, content costs and sales expenses decreased by 2% year-on-year.

J.P. Morgan's supporting factors for iQiyi include: 1) sustainable growth in average monthly revenue per paying user of only RMB 16; 2) further growth of brand advertising and performance advertising; 3) prudent control of content costs and sales expenses because the competition environment in China's long-form video market has become more moderate compared to the past. In the next few years, the expansion of average monthly revenue per paying user will become the main driving force for iQiyi's growth.