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iQiyi shares dive 12% on SEC probe despite steady growth in Q2

Its revenue from membership services rose steadily while incomes from online ads declined.

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Despite reported growth in June-quarter earnings, Baidu-backed streaming service iQiyi (NASDAQ: IQ) has seen its stock tumble by 12.36% to USD 21.68 in the extended trading session after it disclosed that the US Securities and Exchange Commission (SEC) was probing the firm.

The streaming giant announced in its second-quarter earnings that the SEC “is seeking the production of certain financial and operating records dating from January 1, 2018, as well as documents related to certain acquisitions and investments that were identified in a report issued by short-seller firm Wolfpack Research in April 2020.”

It also noted that after the release of the report, iQiyi started an internal review, which is ongoing.

For the reported quarter, iQiyi’s revenue grew 4% year-on-year (YoY) to RMB 7.4 billion (USD 1 billion) with a narrowed net loss of RMB 1.4 billion (USD 204 million).

The number of subscribing members was 104.9 million by the end of June, up 4% from the prior year, and most of them are paying users. The growth in paying user base boosted a YoY 19% increase in membership services—revenue was RMB 4 billion (USD 572.7 million), accounting for more than half of total revenues.

Meanwhile, revenues from online advertising services decreased by 28% YoY to RMB 1.6 billion (USD 224.5 million), due to the “challenging macroeconomic environment in China”, the company said.

The slide in stock price mirrors investors’ lack of confidence in US-listed Chinese companies after the Luckin Coffee scandal disrupted the market. The coffee chain admitted the fabrication of sales numbers and was delisted from the Nasdaq in June. Furthermore, amid the tension between the world’s largest economies, US regulators are tightening their scrutiny of Chinese firms, which forced some to consider a dual-listing or secondary listing in exchanges closer to home.

In June, Tencent (HK:00700), owner of Tencent Video, was reportedly in talks with Baidu, iQiyi’s parent company, for building a stake in the streaming platform, in a bid to cement dominance in the entertainment industry.

Affected by the SEC investigation on iQiyi, Baidu (NASDAQ: BIDU) shares are also trading lower after hours on Thursday. The search engine and artificial intelligence company reported revenue of USD 3.69 billion, decreasing 1% from a year ago for the second quarter.