iQIYI(US:IQ) Zhao Yin Guo Ji·2024-07-29 06:31Investment Rating - The report maintains a BUY rating for iQIYI, indicating potential for over 15% return over the next 12 months [3][10][18] Core Views - iQIYI is expected to face short-term headwinds in 2Q24, with total revenue forecasted to decline by 5% YoY to RMB7.4 billion, primarily due to underperformance of certain drama series and a decrease in variety shows [3] - Non-GAAP operating profit is projected to drop by 36% YoY to RMB503 million, despite stable content costs and operating expenses [3] - A recovery in total revenue and profit is anticipated in 2H24, driven by a strong content pipeline [3] - The target price is set at US$6.40 based on a 16x FY24E PE, down from a previous target of US$8.60 [3][10] Revenue and Profit Forecasts - Membership revenue is expected to decline by 8% YoY to RMB4.5 billion in 2Q24, attributed to competition and underperforming content [3] - Advertising revenue is forecasted to decrease by 4% YoY to RMB1.4 billion in 2Q24, influenced by fewer variety shows [3] - For FY24E, total revenue is projected at RMB31.0 billion, with a slight decline of 2.6% YoY [4][9] Financial Metrics - Gross margin is expected to improve to 28.2% in FY24E, with non-GAAP operating margin projected at 10.4% [4][9] - Adjusted net profit for FY24E is forecasted at RMB2.8 billion, reflecting a slight decrease of 0.4% YoY [4][9] - The company is expected to maintain flattish total costs and operating expenses YoY in 2Q24E [3] Market Position - iQIYI's viewership share among the top 20 drama series has significantly declined from 39% in 1H23 to 18% in 1H24, indicating increased competition [3] - The company remains cautious on content investment and operating expenses, which may impact short-term margins [3]