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When Will iQIYI, Inc. (NASDAQ:IQ) Become Profitable?

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iQIYI, Inc. (NASDAQ:IQ) is possibly approaching a major achievement in its business, so we would like to shine some light on the company. iQIYI, Inc., together with its subsidiaries, provides online entertainment services under the iQIYI brand in the People’s Republic of China. The US$3.4b market-cap company posted a loss in its most recent financial year of CN¥7.0b and a latest trailing-twelve-month loss of CN¥6.0b shrinking the gap between loss and breakeven. Many investors are wondering about the rate at which iQIYI will turn a profit, with the big question being “when will the company breakeven?” In this article, we will touch on the expectations for the company's growth and when analysts expect it to become profitable.

View our latest analysis for iQIYI

According to the 23 industry analysts covering iQIYI, the consensus is that breakeven is near. They anticipate the company to incur a final loss in 2023, before generating positive profits of CN¥1.9b in 2024. The company is therefore projected to breakeven around 2 years from now. In order to meet this breakeven date, we calculated the rate at which the company must grow year-on-year. It turns out an average annual growth rate of 39% is expected, which signals high confidence from analysts. Should the business grow at a slower rate, it will become profitable at a later date than expected.

earnings-per-share-growth
earnings-per-share-growth

Underlying developments driving iQIYI's growth isn’t the focus of this broad overview, however, bear in mind that typically a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

Before we wrap up, there’s one issue worth mentioning. iQIYI currently has a debt-to-equity ratio of over 2x. Generally, the rule of thumb is debt shouldn’t exceed 40% of your equity, which in this case, the company has significantly overshot. A higher level of debt requires more stringent capital management which increases the risk in investing in the loss-making company.

Next Steps:

This article is not intended to be a comprehensive analysis on iQIYI, so if you are interested in understanding the company at a deeper level, take a look at iQIYI's company page on Simply Wall St. We've also put together a list of relevant factors you should further examine:

  1. Valuation: What is iQIYI worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether iQIYI is currently mispriced by the market.

  2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on iQIYI’s board and the CEO’s background.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

Have feedback on this article? Concerned about the content? Get in touch with us directly. Alternatively, email editorial-team (at) simplywallst.com.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.