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IQIYI, Inc ($IQ) – DD – Part 3 – Now with sensible China talk

Disclosure: I am **heavily bullish** on iQiyi short-term, mid-term, and long term. This DD is mostly for short-mid term moves.

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IQ overview: [https://www.reddit.com/r/wallstreetbets/comments/nfbmkd/iqiyi_inc_investment_thesis_and_summary_of_dd/](https://www.reddit.com/r/wallstreetbets/comments/nfbmkd/iqiyi_inc_investment_thesis_and_summary_of_dd/)

TA, Bullish but not bullish enough: [https://www.reddit.com/r/wallstreetbets/comments/ov3dh3/iqiyi_iq_technical_analysis/](https://www.reddit.com/r/wallstreetbets/comments/ov3dh3/iqiyi_iq_technical_analysis/)

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**My previous thread:**

[https://www.reddit.com/r/wallstreetbets/comments/oqxzam/iqiyi_inc_iq_dd_part_2/](https://www.reddit.com/r/wallstreetbets/comments/oqxzam/iqiyi_inc_iq_dd_part_2/)

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Yes these are a little long. Read them. This will help a lot. They are clear and hit all the main points.

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Fundamentally, what changed about the company in a week and a half? Nothing.

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However, everyone’s scared of China right now. This post is going to talk about China and how their moves recently will, or rather won’t affect $IQ iQiyi

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Among analysts and China speculators. There is a lot of talk about simply investing in hard technology, ie stocks in the Shanghai STAR that nobody here is ever really going to get exposure to.

Not being able to get exposure to = money doesn’t get in = no replenishment of liquidity into the Chinese markets.

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Basically, no matter how much CCP cherishes their hard tech companies. Not having a liquid market (aka what is happening right now) means those companies don’t get to take off.

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The reason why China’s markets are in such a mess has been due to their lack of clear communication with companies about the regulations they want to try to implement, as well as their poor implementation of policy.

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I won’t go into it more, as it’s not the point of this DD and it doesn’t serve much purpose IMO.

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What I see of the China situation is this:

– They are aware their markets, Shanghai, Shenzhen, and Hang Seng, are highly volatile right now.

– They know they caused this mess, and that investors both foreign and domestic have fled to American equities – that’s how $SPX bounced back hard after that mid-month dip.

– They are deploying state controlled funds and financial institutions (think pension funds, etc) to buy stocks.

– They have eased monpol, but they’re not doing it enough out of fear that easing will just lead people to take the money out of China and buy American

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Out of all of these things, only the one where funds went in and bought stocks seemed to slightly work.

My thinking is China will consider more of that. Not sure if they have the ability to direct more institutions and buy stocks or if they go full Japan and have their central bank buy stocks. The latter would do the job pretty quickly but I don’t think China yet understands they are different from Japan and thus can actually maneuver out of zombification.

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– China went after monopolies, property/real-estate, private education, and gaming (sorta)

-They backtracked as much as their pride allowed them to on the gaming issue, clarifying it’s not policy, just a musing, and removing the thing about gaming being “spiritual opium”

This tells me that China is starting to understand that what they have been doing has been hurting a lot of industries that have only just started to break out in terms of growth (think of recent games games published by Riot, and stuff like Genshin Impact)

I doubt they were actually trying to go after gaming, they just wanted to try to make clear that all their actions are meant to be good for the kids, not bad for the markets. They screwed up

It’s a bit harder on the private education side, because some total genius decided to add the idea of making those organizations non-profit, so the incentive for innovation goes to die. I guarantee the CCP’s trying to find a way to walk that one back with their pride intact.

As for properties, property prices were too high, but China went overboard and it the contagion effect backfired on them. Now they gotta bail out Evergrande and probably find a way to get property prices back up a bit to encourage money inflows.

This ties a bit to their stopping of Ant IPO earlier this year, which now they’re also kinda backtracking on. CCP was concerned about citizens overleveraging debts due to access to easy money. But because of this they accidentally cut off a ton of sources of national liquidity.

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**China will ultimately have to ramp up buying of their own stocks.**

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OK OK – so where does iQiyi $IQ come in?

Basically – it doesn’t, and that’s a good thing.

iQiyi has a lot of pet projects like smart home stuff, VR, AI, etc – stuff that doesn’t seem to tie in with their core business – Why do they have them? The government likes seeing this kind of stuff.

**iQiyi and parent Baidu $BIDU are very much in CCP’s good graces. $BABA is now fully compliant.**

The next step is to reconcile whatever the issue is with Tencent, since Tencent brings a lot of value into mainland China, and then announce that their regulations are taking a pause for a while.

They have already begun requiring that before any move is made by a company, the company gets together with a state affiliated bank and regulators to discuss any potential for market volatility.

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If investors aren’t convinced, China will find, or become, the buyer – even if they are reluctant now.

Alibaba $BABA, earnings were good, their media business showed increased revenue and halved costs YoY, the same kind of things that we’re looking forward to from $IQ iQiyi.

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The market has been able to support all kinds of video platform like iQiyi, Alibaba’s Youku, Tencent Video, MangoTV, etc etc – it is far from saturated.

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iQiyi’s “Sweet On” romance program did very, very well over Q2, so their advertising revenues should be up big time YoY and QoQ.

They’ve got deals with the Premiere League for soccer – Chinese people love watching soccer.

Deals are being made to go international through partnering with other companies globally. North American debut is already on the way.

You can just look up this company on Yahoo Finance and see every little thing they’re doing.

Their profitability in 5 years forecast can be believed. I think it happens in half the time. At current market value though, it’s a huge steal either way.

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See the fear, front-run the recovery. iQiyi $IQ has disproportionately dropped compared to other China stocks, because those ADRs have equivalents on the Hang Seng and thus are difficult to suppress/manipulate.

But iQiyi hasn’t even been accidentally targeted by any government or statements.

Combine this info with everything else in my Part 2, and you might understand what makes this my pick.

Once China stops speaking with press releases and starts really showing the money, you’ll get the V-shaped runback. iQiyi is in the best position for this.

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Buy volumes really picked up for $IQ today btw. Unusually high buy ratio.

What do you think?

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14 Comments

  1. Big Darkpool buys yesterday observed by Twitter users

    [https://twitter.com/OrdinaryWooper/status/1422922335548579843](https://twitter.com/OrdinaryWooper/status/1422922335548579843)

    [https://twitter.com/AFTAlerts/status/1422935433684598788](https://twitter.com/AFTAlerts/status/1422935433684598788)

    [https://twitter.com/AFTAlerts/status/1422961785938878469](https://twitter.com/AFTAlerts/status/1422961785938878469)

  2. Update:

    Any hope for an IQ rebound within the weeks or months is now over. The price action from the past two days cannot be explained with anything we know about China. From what I have observed, it seems people are selling/shorting China positions in order to buy the dip in US Tech.

    China also did not provide the support I had expected it would provide.

    Not everything works out.

  3. I would wait until sentiment changes in the market. Might take awhile given recent news.

    I dont like Chinese stocks as they are essentially shell companies. And there are a lot of opportunities here in the US that don’t carry a lot of those risks.

    Good luck in your trades, though.

Can’t compile simple contract. Doesn’t like when I put ‘public’

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