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iQIYI’s Latest Earnings: What Investors Need to Know

iQIYI Inc (NASDAQ: IQ) is a leading online video platform based in China. It is often referred to as the “Netflix of China” given the similarities in its business model.

Last week, the company announced its third-quarter results for 2019. Here’s what investors should know from the announcement.

The good

I’ll start with the good points. Overall, revenue was up by 7% from the same period last year to RMB 7.4 billion (US$1.05 billion). In particular, the company grew its membership services revenue by 30% year-on-year to RMB 3.7 billion.

The strong performance came from the solid growth in the number of subscribing members. Moreover, the company recently launched its multilingual iQIYI app that can be downloaded globally from Apple’s App Store and Google Play.

It is also expanding its global footprint with local language support in six Southeast Asia countries, including Malaysia, Indonesia, and Thailand, among others, as well as Greater China regions including Hong Kong, Macau, and Taiwan. In other words, investors can expect the company to continue growing its subscriber base for a long time to come.

The bad

Despite the positive points mentioned above, there are a number of challenges that the company faced in its last quarter. For one, online advertising services revenue fell 14% year-on-year to RMB 2.1 billion, mainly due to the challenging macroeconomic environment in China, delay in content launches and the increase in competition in in-feed advertising.

Also, content distribution revenue declined 18% to RMB 680.4 million, mainly due to the delay of certain content launches during the quarter.

Moreover, the company’s operating loss of RMB 2.8 billion was even higher than that of last year (RMB 2.6 billion), with an operating loss margin of 38% (versus an operating loss margin of 37% in the same period in 2018).

Key takeaway

Overall, iQIYI continued to grow its business nicely (despite some small hiccups in its advertising and content businesses). Yet, the company continues to burn through significant amounts of cash as it invests in new content.

Thus, investors should closely monitor the company’s cash position, as well as its ability to turn profitable in the coming years.

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The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Hong Kong contributor Lawrence Nga doesn’t own shares in any companies mentioned.