Our Thoughts iQiyi IPO
Hello Real Life Traders!
Itâ€™s Ashley with the best in the bizz - Real Life Trading. It feels like a minute since I have talked to you. You will probably remember me from the two IPO articles about Dropbox and Spotify. Well I am still on that tech train. Are you ready to hop on?!
If you keep up with us often you have heard about the stock Baidu. Many people liken it to the Google of China as it makes up 80% of the search advertising. IQiyi (pronounced eye-chee-yee), on the other hand, you may not have ever heard of. Donâ€™t worry I hadnâ€™t either until recently. ;) IQiyi, originally Qiyi was founded on April 22, 2010 by Baidu and Providence Equity Partners, in Beijing China. On November 2, 2012 Baidu forked out the cash to become the100% owner of the company. I have heard many people and companies talk about iQiyi calling it the â€œNetflix of Chinaâ€ which is mostly true. According to Bloomberg, â€œ The company operates a platform that provides a collection of Internet video content, including professionally-produced content licensed from professional content providers and self-produced content.â€ I would compare it to almost a Youtube and Netflix hybrid. Unlike Netflix, iQiyi has a free tier, allowing you to watch content that are interrupted by advertisements. If you donâ€™t like ads like me, you pay for a subscription. The subscription, according to Motley fool runs at about 20 RMB (20 Chinesse Yuan) which is around $3.15 American Dollars.
I would venture to say that iQiyi is an emerging giant. At the end of 2017 it had over 50.8 million paying subscribers (a little less than half of Netflix) which is quite a lot of people. Considering Netflix technically started in 1997 and iQiyi only started in 2010, that is not too shabby. Get this though. In total, the video streaming platform has 421.3 million active users. WOW-WEE. I canâ€™t even fathom that many people.
To push that even further, the total population of China is around 1.379 BILLION. That means that approximately 31% of the population is a user of this site. That is already a substantial amount of people on the platform with a huge potential for even more growth. Especially with the constant influx of new content and creators to the site, not to mention the youngsters getting older and are able to pay for the service.
IQiyi has no need to worry about Netflix as it is not direct competitor. Netflix has been raring to join the China market for quite some time now, however strict regulations by the country have kept them out of the huge Chinese entertainment market, for now. But on the bright side, after years of negotiating with regulators, just last year in April 2017, Netflix and iQiyi reached a licensing deal to bring select shows to the Chinese platform. While the goal is ultimately to have complete access to the Chinese market, this small step is something that should not be overlooked. With itâ€™s foot in the door this will give Netflix more bargaining power in the future, especially if the deal proves successful to iQiyi, as much of the competitors in the video streaming market of China use exclusive content as a way to attract new paying subscribers.
Even without Netflix though, iQiyi has a few notable competitors. Two of the larger ones include Youku Tudou (owned by our friend BABA) and goliath Tencent holdings.
Youku Tudou is the fusing of two large Chinese video streaming platforms Youku and Tudou in 2012, resulting in a one of Chinaâ€™s biggest streaming sites. As I understand Youku Tudou is similar to Youtube. While I canâ€™t seem to find current stats on the amount of subscribers, they did report 30 million subscribers in the end of 2016. Even with 30 million+ subscribers, higher than the industry average subscription prices and premium exclusive content deals on other sites could contribute to them loosing an edge. Youku Tudou could also do a better job of taking advantage of their parent company BABAâ€™s advertising potential.Tencent Video on the other hand continues to be a major competitor for iQiyi. Owned by the behemoth Tencent, it is definitely ripe to keep iQiyi on itâ€™s toes. With a jaw dropping 62.59 million subscribers (as of Feb 2018) and 500 million monthly active users, Tencent video continues to defend itâ€™s name as Chinaâ€™s internet giant. I will be doing another article soon about just Tencent because during my research I was blown away at how huge and encompassing this company is. More on that later. Tencent holdings itself is already profitable. Boasting 4th quarter profits in 2017 of 3.3 BILLION dollars, .7 BILLION over their estimate, this company continues to surge ahead. It knows how to make money and does it well. With such a big and experienced â€œparentâ€ company I have no doubt that Tencent video will continue to be a big leader in the space. They have already mastered the art of exclusive content deals and even create videos and movies about their other products including video games and books. On top of that they also make the most out of cross advertising and utilizing their Tencent products on Tencent videos. A business no-brainer. :) Tencent is currently only available OTC for US customers. I will be adding some to my portfolio for sure.
Overall, the general consensus is that iQiyi is the market leader (my thoughts because of itâ€™s relatively short time on the scene, low price and high value content), followed very closely behind by Tencent video, then chased by Youku Tudou.
And then we have the chart.
We do not have tons of data on this one, but one thing that is striking is simply it's stock price. SPOT (as mentioned in a previous write up) had an IPO price of above $160. IQ on the other hand was about $18.
That is substantially cheaper. Which just screams (to me at least), IQ has a better chance to give traders a higher likelihood of greater percentage gains in their investment.
Again, we do not have loads of candles, but that's totally fine. Jerremy and the gang rocked a really superb swing trade on this one after being on the markets for less than 2 weeks. The following 3 links contain his set up along with the progression of the trade, so you can see what he did.
The cool news is, it's repeating the exact same set up right now! :-)
Anyway, Jerremy and I have discussed about buying into this stock for the longer term haul. It just seems like an almost 'too cheap' of a stock and company with 'too much' upside potential not to slowly squeak out higher. Of course, all investments carry risk. We certainly do not advise investing money you can't afford to lose on this one, but it is at least a stock and company to keep safe on that watch list for the foreseeable future.
Thank you for reading! I hope you found this information valuable, easy to read and enriching. You are a lovely person and I appreciate you being a Real Life Trader. Until next time, Love Life, Live Life and Trade it!