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Home / Business / IQiyi, the & # 39; Chinese Netflix & # 39 ;, brings in more than $ 2 billion in IPO, the stock drops on the debut

IQiyi, the & # 39; Chinese Netflix & # 39 ;, brings in more than $ 2 billion in IPO, the stock drops on the debut



With more subscribers than Netflix Inc., China's version of the company – called iQiyi Inc. – did not receive the warm embrace of its American counterpart on its first day of trading in the US

A Day To China Entertainment Platform Bilibili Inc.

BILI, -2.14%

went public, iQiyi.

IQ, -13.61%

began trading on Thursday, having gained at least $ 2.25 billion on a $ 1

2.7 billion valuation. The deal was the second largest IPO in the US by a Chinese company, behind only the e-commerce giant Alibaba Holdings Group Ltd.

BABA, + 2.59%

in 2014.

At $ 18 a share, averaging between $ 17 and $ 19, iQiyi closed American Depositary Shares on Thursday 14% at $ 15.55 Nasdaq stock market as the market climbed in a broad rally with the Dow Jones Industrial Average

DJIA, + 1.07%

S & P 500 Index

SPX, + 1.38%

and Nasdaq Composite Index

COMP, + 1.64%

all gain more than 1%. IQiyi's ADS are worth seven stocks that are traded elsewhere, such as: In China.

Do not Miss: The iQiyi IPO: Four Things to Know

While US investors were able to buy shares for the first time, the company remains under majority control by Chinese search giant Baidu Inc.

BIDU, + 0.04%

. Some investors see this as a positive net result as it will continue to provide the necessary computer infrastructure to operate the platform.

Despite a week of volatility for tech stocks and difficulties, other Chinese companies have since the announcement of tariffs by President Donald Trump exposed billions of dollars in commodities from that country, said Xiodong Wang, iQiyi's chief financial officer, that the company not afraid to push his IPO.

"There was enough demand for the stock," he said in a telephone interview with MarketWatch on Thursday. "We believe that the majority of shareholders and investors share the same opinion from the long-term perspective."

See also: This Chinese app maker has just been estimated at more than $ 3 billion

The Long Wang said investors have three major sources of revenue: around 45% through advertising, followed by 35% through paying subscribers and 15% through games and ecommerce sales, a spokeswoman said.

Sales last increased to $ 2.57 billion a year from $ 1.69 billion in 2016, according to FactSet

But the company is not profitable. The company reported net losses of $ 552.95 million last year, up from $ 462 million in 2016, according to FactSet. However, taking into account the accumulation of US $ 779.7 million of repayable convertible preferred stock, the Company is forecasting profits of US $ 144 million in 2017.

In order to improve margins and make a profit, investor iQiyi should look up original content production, which offers some of the best margins of the products it sells.

"If you want more subscribers, you need more original content – it's the same strategy as Netflix."

IQiyi had 60.1 million members on February 28, with more than 98% paying subscribers. In comparison, Netflix

NFLX, + 3.35%

had approximately 53 million paying subscribers in the US and another 58 million overseas in the fourth quarter.

The margins for original shows are very attractive because iQiyi costs about half the cost of licensing something similar, and offers the opportunity to earn more money from related intellectual property.

"After a series of successful original content, we continue to invest more in this area," said Wang.

Senior Portfolio Manager David Miller said his company, Catalyst Funds, intended to take a position in iQiyi because they like the original content and the fact that Netflix uses big data and analytics to suit the tastes and preferences of its users become.

"This is the largest IPO since Alibaba," he said. "The question for us: what will be the steady growth path, and how well will they compete against their competitors?"

Among its perceived competitors in China are Alibaba through its content offering and Tencent Holdings Ltd

0700, -0.63%

.


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