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Better Buy: iQiyi vs. Match

iQiyi (NASDAQ: IQ) and Match (NASDAQ: MTCH) don't seem to have too much in common. True, both companies fall within the broad tech sector, but they offer vastly different services to their respective clients. Similarities and differences aside, though, here's a more pressing matter: Which of these two tech stocks presents better prospects at the moment? Let's dig in and see whether video-streaming giant iQiyi or online dating specialist Match is a better stock pick heading into 2020.

Image Source: Getty Images.

Core operations

iQiyi is sometimes called the "Netflix of China," which is a neat way to describe its core business segment. But beyond the company's video streaming and original content business are its licensing, content merchandising, and online games businesses. iQiyi generates the bulk of its revenue via paid subscriptions.

Match is well known for the services it provides; the company is one of the most recognizable brands in the online dating game. Other than its main namesake website and accompanying app, Match owns several well-known subsidiaries, including OkCupid, Plenty of Fish, and, of course, Tinder. Match also makes most of its money via subscription.

Financial results

Both iQiyi and Match reported their third-quarter earnings results last month. Let's start with the video streaming platform. iQiyi's revenue for the quarter was $1 billion, an unimpressive 7% increase compared to the year-ago period. The company's less-than-stellar revenue growth was primarily due to year-over-year declines of 14% and 18% in its advertising service revenue and content distribution revenue, respectively.

The company's membership services revenue grew by 30% compared to the year-ago period and represented 50% of its total revenues. Also, iQiyi grew its number of paying subscribers by 30% year over year. However, the company still isn't profitable. iQiyi posted an operating loss of $396.2 million, although that was a significant improvement from the $2 billion operating loss recorded a year ago. Lastly, iQiyi recorded a net loss per American Depositary Share (ADS) of $5.04 for the quarter, compared to $4.34 recorded a year ago.

Match's average subscriber figure for the third quarter was 9.6 million, a 19% increase year over year. In particular, Tinder's average subscriber number was 5.7 million, increasing by 1.6 million year over year and by 437,000 sequentially. On the back of its strong subscribership growth, Match's revenue of $541 million increased by 22%, while its average revenue per user (ARPU) grew by 4% year over year. Further, the company's operating income and net income climbed by 26% and 16%, respectively.

Although Match's revenue growth in its most recent quarter was more impressive than iQiyi's, the latter has historically grown its revenue at a much faster rate. Between 2015 and 2018, iQiyi's annual revenue grew by 370%, which compares favorably to Match's annual revenue growth of 70% over the same period. However, Match is consistently profitable, whereas iQiyi isn't.

Challenges

iQiyi is facing at least two major challenges right now. First, the company is feeling the negative effects of macroeconomic factors, such as the slowdown of the Chinese economy and China's trade wars with the U.S. iQiyi expects these headwinds to continue for at least a bit longer. The midpoint of its guidance for the fourth quarter would have its revenue increasing by about 1% year over year.

Second, iQiyi has several competitors to contend with in its domestic market. Most importantly, Tencent has been in a neck-and-neck battle with iQiyi in terms of subscriber count. iQiyi is spending a lot of money on original content (with the help of Baidu) to come out ahead in this matchup. During the third quarter, its operating expenses increased by 7%.

Match also has its share of competitors. There is no shortage of online dating services, including the website eHarmony and the dating app Bumble. Facebook has also entered the online dating game with Facebook Dating, and lastly, there is Spark Networks, the only publicly traded company in the bunch whose primary focus is online dating. Spark owns more than two dozen dating services, but at 445,000 (and dropping) average subscribers, decreasing revenue and a net loss, this company does not present a particularly strong challenge to Match at the moment. Still, given the competitive nature of the industry, Match's growth could eventually be derailed by one (or more) of its peers.

Which is the better buy?

iQiyi is currently an unprofitable business that is facing strong competition in its core market and increasing operating expenses. Although iQiyi's revenue is likely to climb faster than Match's -- which will appeal to growth-oriented investors -- the company's prospects seem a bit on the risky side. More prudent investors will want to bet on the less exciting, more stable, more profitable prospects that Match presents.

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Randi Zuckerberg, a former director of market development and spokeswoman for Facebook and sister to its CEO, Mark Zuckerberg, is a member of The Motley Fool's board of directors. Prosper Junior Bakiny has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Baidu, Facebook, Match Group, Netflix, and Tencent Holdings. The Motley Fool recommends iQiyi. The Motley Fool has a disclosure policy.


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