Muddy Waters joins Wolfpack in claiming iQIYI is a ‘fraud’

7 Apr, 2020 23:46
source: Singularity Financial

Singularity Financial Hong Kong April 7, 2020 – by David Lee

Carson Block’s Muddy Waters Research announced a short position in iQIYI saying it believes the company is a “fraud.”

Muddy stated via Twitter. “We assisted @WolfpackReports with comprehensive research into iQIYI. MW believes that iQIYI fraudulently and materially overstates its users, revenues, acquisition consideration, and value of its ‘barter’ content…”

Muddy Waters and Wolfpack Reports researched iQIYI for over one year, including extensive surveying in Tier 1 cities, and collecting IQ data from advertising agencies. Shares of iQIYI are down 10.5% to $15.00 following the short report from Wolfpack Research and the corresponding tweets from Muddy Waters.

“Our research shows us that iQIYI, Inc. (IQ) was committing fraud well before its IPO in 2018 and has continued to do so ever since. Like so many other China-based companies who IPO with inflated numbers, IQ is unable to legitimately grow their business enough to true up their financial statements.  We estimate IQ inflated its 2019 revenue by approximately RMB 8-13 billion, or 27%-44%.” written by Wolfpack.

The shorting report titled “IQIYI: The Nextflix of China? Good Luckin.” concluded the finding with an affirmative tone:  if what we’ve said thus far doesn’t concern you, all we can say is “good Luckin”

Top Institutional Holders for iQIYI

iQiyi is often referred to as the “Netflix of China.” It is one of two dominant video streaming providers in China, sharing roughly an equal share of the market with rival Tencent (OTC: TCEHY) Video. iQiyi is backed by leading Chinese search giant Baidu and had its initial public offering (IPO) in 2018.  About one-fourth of Baidu’s revenue comes from its streaming video subsidiary, iQiyi.

Source: iQiyi Form 20-F for 2019 with SEC filed on March 12, 2020

The company monetizes its video streaming service with both a paid subscription offering and an ad-supported option. About half of iQiyi’s $1.1 billion in revenue in the fourth quarter came from paid memberships. Membership services revenue increased 21% year over year, which management credited to its growing library of premium content.

Fiscal Year 2019 Highlights

●  Total revenues were RMB29.0 billion (US$4.2 billion), representing a 16% increase from 2018.

●  Operating loss was RMB9.3 billion (US$1.3 billion) and operating loss margin was 32%, compared to operating loss of RMB8.3 billion and operating loss margin of 33% in 2018.

●  Net loss attributable to iQIYI was RMB10.3 billion (US$1.5 billion), compared to net loss attributable to iQIYI of RMB9.1 billion in 2018. Diluted net loss attributable to iQIYI per ADS was RMB14.14 (US$2.03), compared to diluted net loss attributable to iQIYI per ADS of RMB17.01 in 2018.

For the first quarter of 2020, management is calling for revenue to increase between 2% to 8% year over year, reaching a level of $1.02 billion to $1.08 billion.

Source: iQiyi Form 20-F for 2019 with SEC filed on March 12, 2020