CEO is steering the company more toward Disney than Netflix as inspiration (in terms of content and merchandising strategies).
Reasons IQ is worthy of investment.
Reasons for caution regarding IQ.
Tencent is being aggressive in growing market share.
Alibaba (BABA) and Tencent (TCEHY) have huge treasure chests to attempt to take market share from IQ.
The story behind the interview:
ALT Perspective has written several pieces on iQIYI (IQ) recently and I caught up with him to learn more about the "Netflix of China."
For those who prefer to read, my full interview notes are copied below.
Link to ALT Perspective's original article:
IQ is a market leading online entertainment service, in many ways similar to Netflix. Commonly referred to as the "Chinese Netflix"
It is creating content that has gone on to be quite popular. The company is also very interested in partnering and licensing.
CEO is steering the company more toward Disney than Netflix as inspiration (in terms of content and merchandising strategies)
Ex: Angry Birds began as a video game and went on to movies and merchandising
IQ is aiming for greater vertical integration
Reasons IQ is worthy of investment
The company and trend has a lot of momentum
The IQ story is just getting started
It's like investing in the early days of Netflix
Reasons for caution regarding IQ
The company is based in China (may not be fully transparent). As a result, there could be issues we are not aware of yet.
What about the fundamentals?
Doesn't look nice; P/E and P/S are both high
Creating content is expensive
An investment like this is not meant to be a core part of a portfolio
Tencent (OTCPK:TCEHY) is being aggressive in growing market share
Paid subscribers are increasing significantly. People can still watch content for free but see ads.
As the middle class in China grows, people will want to pay for ad-free subscriptions.
Alibaba (BABA) and Tencent have huge treasure chests to attempt to take market share from IQ
Tencent is on par with IQ in terms of mobile MAU
Time spent on long-form video going down
Short form video consumption is going up on mobile
Consumer time spent on video is encroaching on time spent on social media
Will people spend less time on WeeChat be a threat to Tencent?
China's "FANG" is "BAT" - Baidu (BIDU), Alibaba, Tencent
Baidu is the "Google" of China and a backer of IQ
The Tencent is like the Amazon threat
Should not dismiss completely, but can be overstated
Investors expecting IQ doubling or tripling in a year are mistaken
Investors must be prepared for short seller reports, etc. How will you respond to the negative news? Will you hold, sell, and/or regret?
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Disclaimer: This article is for information purposes only. There are risks involved with investing including loss of principal. Brian and Investor in the Family make no explicit or implicit guarantee with respect to performance or the outcome of any investment or projections made. There is no guarantee that the goals of the strategies discussed by Brian and Investor in the Family will be met.
Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.
Editor's Note: This article discusses one or more securities that do not trade on a major U.S. exchange. Please be aware of the risks associated with these stocks.