Short Iqiyi: Strong Counterattack, Short Report, Shareholders' Holdings To Seek New Business

China's stock market is short of attack, and this time it is Iqiyi.

In April 7th, the US short agency Wolfpack research released a 37 page short report for Iqiyi, pointing out that Iqiyi had many problems such as exaggerating the number of users, revenue and inflated costs. Muddy water is also involved in Wolfpack's investigation of Iqiyi.

Immediately, Iqiyi responded strongly. In April 8th, Iqiyi responded to the twenty-first Century economic report reporter, saying that all false allegations were firmly denied, and the right of legal prosecution was retained. "The quoted data and conclusions are very unrealistic and inconsistent with the actual situation. As a responsible listed company, all the financial and operational data disclosed by us are true and conform to the requirements of SEC." Iqiyi said.

In fact, for this short report, including investors, analysts and other capital market personages, they all expressed "unprofessional" views. "A lot of data in the report are changing concepts."

On the other hand, the ever increasing shareholders seem to prove their trust in the company. Gao Ling capital and Iqiyi founder, CEO Gong Yu continue to increase Iqiyi. Iqiyi's latest submission of 20-F to the US SEC shows that Baidu has 92.7% of the voting rights, accounting for 56.1% of Iqiyi's total share capital, 6.34% of its total share capital, and 1.1% of its voting rights; Iqiyi founder and CEO Gong Yuzhan's total share capital of 1.93%. Last year, the proportion of high leverage capital to Iqiyi's total share capital was 4.7%; Gong Yu held about 1.84% of Iqiyi's stake.

"From the ownership structure of Iqiyi, it is very difficult to have the motive of" counterfeiting ", Baidu has absolute control, and the share of the original operation team is very small, so there is no need to take this risk. Some investors told reporters on twenty-first Century economic report.

It is worth noticing that, aside from being unreliable, it is essential for Iqiyi to face the problem of cash flow from a fundamental point of view. It is very important to continue financing, and short selling is likely to combat market enthusiasm, especially in the current recession. The fourth quarter of 2019 released by Iqiyi at the end of 2 showed that in the financial year, Iqiyi's asset liability ratio reached 78.3%.

In this case, it is particularly important to improve performance as soon as possible. On the other hand, Iqiyi is also looking for a new story about itself.

China's stock market is short of attack, and this time it is Iqiyi. IC photo-

Misleading report?

The short report says Iqiyi has exaggerated 42% to 60% of its DAU, based on data from two Chinese advertising companies and a special report issued by QuestMobile.

For the so-called advertising company data, because anonymous, and can not be evaluated, but it is worth noting that the QuestMobile data source mainly for mobile phone terminal data, for computers, iPad and other playback volume, no monitoring, the caliber is different.

In the report, Wolfpack used in the programs like "old boy", "idol trainee" and "hot blood Dance Troupe" and so on. In the sparsely populated areas such as Tibet, the top ten national ratings were taken as an example to prove Iqiyi's counterfeiting. In April 8th, the twenty-first Century economic report reporter registered on the Iqiyi index system, and found that the "love apartment 5" and "imperfect she" were not in existence. Report sampling is incomplete.

At the same time, the aforementioned short report said that Iqiyi had overestimated the income of copyright exchange, and quoted a former Iqiyi employee who was engaged in content acquisition, saying that the non exclusive license usually has a value of 1000 to 5000 yuan per set. For a very popular program, the non exclusive license generally reaches up to 20 thousand yuan per set. For the highest 20 thousand yuan argument, people with film and television companies said, "there is no common sense".

Wolfpack also said that since 2015, Iqiyi's all China VIEs and WFOEs credit reports show that Iqiyi's deferred income has exaggerated 261.7%, 165.5% and 86.2% respectively in 2015, 2016 and 2017. In addition, the growth of Iqiyi membership is inconsistent with the decline in real deferred income. During the 3 quarter of 2018 to the 1 quarter of 2019, the number of Iqiyi households increased by 16 million 100 thousand, and the average subscription period increased from 6 months to 8 months. However, the deferred income of the same period decreased by 17%. "Our field diligence survey in China found that about 31.9% of Iqiyi users obtained exclusive Iqiyi VIP content through partners such as Jingdong, millet TV and Ctrip. Iqiyi did not properly calculate these members from partners, which made Iqiyi's income exaggerated and consumed false book cash. Wolfpack said in the report.

In this regard, Xiao Yanyan, an analyst at CITIC Securities, pointed out that Credit Report (credit report) data and SEC data were not a concept, not strong supporting evidence; 60% of Iqiyi members were continuous monthly, and this part was rarely deferred revenue (deferred business income); deferred revenue estimates were related to the rhythm of package year (promotion) activities. The foregoing assumption is not valid. It is worth mentioning that in February, the earnings call conference, Iqiyi CFO Wang Xiaodong said that this year will substantially reduce promotional activities.

"The so-called" covering Beijing, Shanghai, Guangzhou three first tier cities "1561 people concluded that the conclusion is very biased. Iqiyi is responsible for members' disclosure. Iqiyi and other members of the platform alliance are not large enough, and Jingdong is the largest. There may be several million (Jingdong plus total membership is 10 million, 2018Q4 disclose data). This accounting recognition method is also common in the industry. Xiao Yanyan said.

In addition, Wolfpack also bought a price of 3 times premium of Iqiyi (351 million yuan) relative to the TV station's selling price, for example, if the time can be turned back, it means Iqiyi deliberately exaggerated asset prices to cover up exaggerated revenue. In fact, if Jin Dong, Jiang Xin, Tsung-Han Lee and Li Naiwen play the role of "if they can turn back", they can be regarded as one of the head projects, and the head project has always had a larger right to speak in the industry, and the price of the Internet terminal has already been higher than the TV station. "The network platform plus TV stations, which can deliver more than ten million episodes to the market, still exist in the market. For the pursuit and competition of high-quality head content, the platforms are still willing to spend money." Zhao Bin, deputy general manager of Ciwen media, told the economic news reporters in twenty-first Century.

Finding new stories

On the other hand, aside from the problems of short selling reports, Iqiyi, which is losing money for a long time, is indeed facing cash flow problems. Being short is likely to affect important financing.

According to the financial report, in 2019, the assets and liabilities ratio of Iqiyi reached 78.3%, the net cash flow generated by business activities was 3 billion 906 million yuan, and the net cash flow generated by investment activities was -177.50 billion (copyright costs belong to such kind). "As content control continues, the platform has to shoulder high royalties on the one hand. It has not been able to broadcast advertisements. It also faces short video impact and has cost of capital pressure. Video platform funding is the biggest risk. The head of a film and television company told reporters on twenty-first Century economic report.

The tight cash flow has affected the business side. Another listed film company executives told the twenty-first Century business news reporter that the accounts have been greatly extended. "For our head company is relatively good, many small film and television companies, the project drag back longer, more than a year."

In this case, Iqiyi needs to find new stories to convince investors. It seems that Iqiyi has found it, and this story can also reduce the high cost of content.

"Medium video with an average duration of 7-8 minutes or even more than ten minutes, which is similar to YouTube, has a low share in the Chinese market. In the whole industry, the daily active users of these videos are less than 100 million. But YouTube is ranked first in most countries and regions of the world. Therefore, there will be great opportunities for China's future market. In the PUGC mode, we pay the cost of the content by way of advertising expenses or by user payment. This part will not increase Iqiyi's fixed content cost. This is another distribution channel that can improve our ability to repay money and share part of the cost. " Gong Yu said at the February earnings conference. The "Iqiyi with the block" App, which is the standard YouTube, was formally launched on the whole channel in April 2nd.

Of course, under the current framework, Iqiyi's performance also has a turning point, which is gradually controllable content costs and membership revenue. In 2019, Iqiyi's content cost remained high, reaching 22 billion 200 million yuan, and its total operating cost accounted for over 70%, but its growth rate (20196%) was significantly narrowing. The first increase in content cost since the listing was low to single digit (2016104.1%, 201767.3%, 201867%). The results showed that the content cost of Iqiyi Q4 was reduced by 13% compared to the same period in 2018 due to the delayed broadcast of some content and the decrease in the cost of original content. With the addition of the "limit salary order" and the increase of Iqiyi content, Iqiyi's content cost still has room to reduce.

"We are a business model of eating more fish, big apple model. The first stage is advertising. The second stage is membership, game live broadcasting, derivatives and so on, all of which are possibilities in the future. Our electricity suppliers and gaming revenues are not small. In the past few years, advertising revenue accounted for eighty percent of total revenue, and a slow balance needs a process. Prior to this, Iqiyi member and overseas business group president Yang Xianghua analyzed the Iqiyi business model to reporters in twenty-first Century.

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