Iqiyi was investigated by the US Securities and Exchange Commission (SEC), according to documents disclosed by iqiyi on the 13th. The SEC asked the company to provide its financial and operating records since January 2018, and iqiyi to provide relevant documents in response to the accusation made by short seller Wolfpack research in its short report.
iqiyi shares closed down 2.43% to $21.68 on the 13th. After the disclosure, iqiyi’s shares fell 19% in the after hours trading. As of 5:30 a.m. Beijing time on the 14th, iqiyi’s shares fell 16.74% in the after hours trading period, temporarily trading at $18.05.
iqiyi said that in response to Wolfpack research’s allegation, professional consultants had been hired to conduct internal investigations, which would report directly to the company’s audit committee and could not predict the duration and results of the investigation.
iqiyi was shorted by Wolfpack research in April this year. According to the short report, iqiyi’s fraud was committed before its IPO in 2018 and has continued to this day. Wolfpack research estimates that iqiyi has exaggerated its revenue in 2019 by about RMB 8-13 billion, or 27% – 44%, and iqiyi achieves this goal by boasting about 42% – 60% of its users. In addition, iqiyi overstated the costs it paid for content, other assets and acquisitions, hiding fraud from auditors and investors by burning counterfeit money, the report said.
at that time, iqiyi responded at the first time: “as for the report on questioning iqiyi published by a third-party organization today, the data cited and the conclusion are seriously untrue and inconsistent with the actual situation. As a responsible listed company, all financial and operational data disclosed by us are true and meet the requirements of the sec. We firmly deny all false accusations and guarantee that Leave the right of legal prosecution. ”
on August 13, US Eastern time, iqiyi released its unaudited financial report for the second quarter ending June 30, 2020. According to the financial report, iqiyi’s total revenue in the second quarter of 2020 will reach 7.4 billion yuan (about US $1 billion), up 4% year-on-year. By the end of the second quarter, iqiyi had 105 million subscribers.
in the second quarter of 2020, the revenue from member services was RMB 4 billion (about US $572.7 million), an increase of 19% compared with the same period in 2019. The growth was mainly driven by the increase in the number of subscription members and the company’s various operational measures to enhance the monetization of member business.
in the second quarter of 2020, iqiyi’s revenue cost decreased by 2% compared with the same period in 2019. An operating loss of 1.3 billion yuan (US $181.4 million) was a significant decrease from the first quarter of this year (2.2 billion yuan). The operating loss rate is 17% and 26% in the same period of 2019.
as of June 30, 2020, iqiyi held a total of RMB 9.5 billion (about US $1.3 billion) in cash, cash equivalents, restricted cash and short-term investments.
“in the second quarter, our member services revenue increased by 19% year-on-year, and remains our largest pillar business. Through the launch of Star Diamond membership package, we have further optimized our membership system to meet the needs of different users. ” Wang Xiaodong, chief financial officer of iqiyi, said: “we continue to make strategic investment in original content to improve self-control ability, and at the same time invest more prudently in all aspects, which makes our loss rate narrow. As the epidemic is contained in China, its negative effects are gradually fading away, and we believe that we will achieve healthy and sustainable long-term growth. ”
on June 16, Reuters reported that Tencent had contacted Baidu, which owns 56.2% of iqiyi shares, to discuss the purchase of iqiyi shares. The specific scale of the share purchase has not yet been determined.
people close to Baidu said that the plan is still at an early stage and may change. Iqiyi was confirmed by the daily economic news reporter, who declined to comment. Tencent also responded to the media and declined to comment.
on the afternoon of June 17, Guo Feng, who was certified as “Baidu public relations director” on Baidu app, responded by saying, “don’t guess. Iqiyi is an important part of Baidu’s content ecological strategy, and Baidu will continue to support the development of iqiyi. ”
in response to this rumor, the capital market took the lead in responding with “real gold and silver”. As of 19:00, June 17, Beijing time, iqiyi shares rose 25.85%, with a total market value of $11.7 billion; Baidu shares rose 5.10%, with a total market value of $42.3 billion.
Wind data show that as of February 29, 2020, Baidu founder Robin Li was the largest shareholder of Iqiyi, with a shareholding ratio of 56.16%, while millet was the second largest shareholder of Iqiyi, with a shareholding ratio of 6.66%. This means that, at least on the capital level, Baidu has an absolute say in iqiyi.
However, Baidu and iqiyi are not a simple capital relationship. Iqiyi can be said to be a “child raised” by Baidu. Ten years ago, baidu announced that it would invest in establishing an independent video company, with Gong Yu as CEO, and then Qiyi went online; one year later, Qiyi announced the brand upgrade and launched iqiyi. It is worth noting that Baidu invested in iqiyi twice in 2011 and became the largest shareholder of iqiyi in 2012. In 2013, baidu acquired ppstream and iqiyi for $370 million.
now, after more than ten years of growth and breakthrough, iqiyi has grown into one of the head video websites. But for the long video industry, even if the two business models of advertising and membership are found out, it is still unable to achieve profit under the high cost investment.
according to iqiyi’s financial report data, the total revenue of iqiyi reached RMB 29 billion in fiscal year 2019, and the net profit attributable to its parent was – 10.323 billion yuan, which was larger than the loss in the previous fiscal year. In the first quarter of 2020q1, iqiyi achieved an operating revenue of 7.65 billion yuan, a year-on-year increase of 9.4%, and the net profit attributable to its parent was – 2.875 billion yuan, mainly due to the decline in advertising revenue.
on August 11, U.S. Treasury Secretary manuchin announced that companies from China and other countries that do not comply with accounting standards will delist from the US stock exchange by the end of 2021.
last Friday (US Eastern time), the US president’s working group on financial markets led by Mr. mnuchin issued a report to the US Securities and Futures Commission (SEC), suggesting that China capital stock companies should conduct “joint audit” through “audit firms with comparable resources and experience” recognized by the public company accounting oversight board (PCAOB) to meet the new standards.
the new rules can provide a transitional period (until January 1, 2022) for enterprises already listed in the United States, while Chinese enterprises preparing to go to the United States for listing are required to comply with the new rules at the time of listing.
subsequently, the China Securities Regulatory Commission (CSRC) said on the 8th that open dialogue and cooperation is the right way to solve the problem, and said that the only way to achieve win-win results for both sides is to solve the problems of common relations through dialogue.
earlier, in an interview with Chinese media in June, the chairman of the China Securities Regulatory Commission (CSRC), Yi Huiman, said that since 2019, the China Securities Regulatory Commission (CSRC) has clearly agreed to carry out consultations on the “joint inspection” method, and has repeatedly proposed specific proposals to the PCAOB, but the US side has not given any positive feedback.