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Why iQiyi Stock Dropped 20% This Week

What happened

iQiyi (NASDAQ: IQ) shareholders lost ground to the market this week. A poorly received earnings report pushed shares down by over 20% through Thursday while the broader market rose. The China-based streaming video specialist's stock is now down roughly 60% so far in 2021.

So what

The company's Wednesday earnings report contained some discouraging news about the streaming business. Sales rose just 6% in the period that ended in late September, which was below management's August forecast.

Subscriber gains were modest and advertising revenue declined. Executives pinned these shortfalls on a weaker pipeline of content releases, plus generally tough economic conditions in China.

Image source: Getty Images.

"We experienced significant uncertainty in terms of content scheduling," CEO Yu Gong said in a press release, "which resulted in softer than expected top-line performance." The entertainment specialist booked a net loss of $268 million and operating losses were 18% of sales compared to 17% a year ago.

Now what

Management warned that the challenge posed by delayed content releases will continue at least through the fourth quarter. As a result, its outlook for the fourth quarter was cautious. iQiyi may see year-over-year sales declines in the period, in fact.

In a conference call with Wall Street analysts, executives expressed confidence that the company can reduce the risk of a few delayed or poorly received content releases harming overall growth.

But this diversification strategy will take time to play out. Meanwhile, investors should brace for slower sales gains, and more volatility, in iQiyi's quarterly results.

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Demitri Kalogeropoulos has no position in any of the stocks mentioned. The Motley Fool recommends iQiyi. The Motley Fool has a disclosure policy.


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