Will iQiyi's Advertising Business Keep Declining?
After growing sales 52% annually to reach revenue of roughly $3.6 billion in 2018 and expanding its first-quarter sales 43% compared to the prior-year period, Chinese video platform iQiyi (NASDAQ: IQ) expects year-over-year sales growth for the second quarter to come in between 12% and 18%. That's a concerning deceleration, particularly as the company has continued to deliver impressive paid-subscriber growth and expects that it will post strong premium-member additions throughout the year.
Currency headwinds are one factor in the forecast slowdown, but the biggest drag on the company's performance appears to be its advertising business. The company's second-quarter revenue target, combined with comments from management, suggests a big performance decline may be coming when the company reports earnings at the end of the month.
With encouraging growth for its membership services, distribution, and "other businesses" segments, iQiyi could certainly perform at the high end of its second-quarter sales target. That said, it's still worth homing in on the company's underperforming ad business ahead of its next earnings report in order to get a better sense of how much the unit could curb overall performance and what that might mean for the company's outlook.
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