Iqiyi: Initiating With $5.20 Valuation; Growth Is Long-Term Challenge Despite Encouraging Signs

We are initiating Iqiyi with a fair value estimate of $5.20. The modest upside reflects our view that customer growth has been a historical challenge despite recent encouraging signs of profitability. Efforts to bolster its content library, both in quantity and quality, have shown briefs signs of success, but have not translated to longer-term growth. Membership growth has remained stagnant, fluctuating between 100 million and 112 million from second-quarter 2019 to end-2022, despite incurring heavy losses from elevated spending on content in the attempt to provide a vast content library on its platform. However, this has not resulted in customer growth, and Iqiyi recently shifted to providing less but higher-quality content for its platform.