Better Buy: iQiyi vs. Match Group | #tinder | #pof


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iQiyi (NASDAQ:IQ) and Match Group (NASDAQ:MTCH) were both once considered high-growth stocks. iQiyi, which was spun off from Baidu in 2018, owns one of the largest streaming video platforms in China. Match, which was spun off from IAC/InteractiveCorp in 2015, owns the world’s top online dating apps.

But today, iQiyi’s stock trades barely above its IPO price, while Match’s stock has risen about 850% since its public debut. Investors have clearly favored Match over iQiyi so far this year: The former has rallied over 40% as the latter has declined nearly 10%. Let’s see if that trend looks likely to continue.

Image source: Getty Images.

What went wrong for iQiyi?

iQiyi’s revenue grew 55% in 2017 and 52% in 2018, but only rose 16% in 2019 and 7% annually in the first half of 2020. That deceleration can be attributed to a slowdown in its advertising business and competition from its main rivals, Tencent Video and Alibaba‘s Youku Tudou.

iQiyi is trying to offset its declining revenue by converting its free ad-supported viewers to paid members. It’s also growing its content distribution business, which licenses content to other platforms.

That shift has kept iQiyi’s revenue growth positive as its ad revenue declined, but its growth in paid members is stalling out. Its total number of subscribers grew just 4% annually to 104.9 million last quarter, but declined 2% sequentially due to a tough comparison to a lockdown-induced spike in the prior quarter and a weaker slate of exclusive dramas.

iQiyi expects its user growth to stabilize, but it remains deeply unprofitable. Its net losses have widened over the three most recent full years and the first half of 2020, when it posted a net loss of 4.32 billion yuan ($624 million) on revenue of 15.1 billion yuan ($2.18 billion). iQiyi expects its revenue to decline 6% annually in the third quarter, while analysts expect its full-year revenue to rise just 4%.

That gloomy outlook was bad enough, but the SEC also recently launched a probe into iQiyi’s financials in response to allegations of fraud. Those headwinds wiped out most of iQiyi’s gains from earlier this year.

What went right for Match Group?

Match’s revenue rose 19% in 2017, 30% in 2018, 19% in 2019, and 14% annually in the first half of 2020. Match’s revenue growth was driven by stable demand for its top dating apps, including Tinder, OKCupid, and Match.com.

A person using a smartphone on which there is a picture of a person and red cartoon hearts

Image source: Getty Images.

Match’s launch of Tinder Gold in late 2017 notably sparked a big growth spurt the following year. Tinder Gold is a $5-per-month upgrade for Tinder Plus subscribers, who already pay $10 a month (or $20 for users over the age of 30) in most developed markets. Tinder Plus allows users to undo swipes, swipe on folks who are overseas, use “super likes” to get a user’s attention, and boost the visibility of their profiles, while Tinder Gold added curated “top picks” for users and the ability to see who likes them. Last quarter, Tinder’s subscribers grew 18% annually to 6.2 million, accounting for 61% of Match’s total subscribers.

Tinder’s growth has decelerated, but Match continued expanding through the recent economic contraction for three reasons. First, it generates most of its revenue from recurring subscriptions, which are less exposed to macro headwinds than ads.

Second, people continued to use Match’s services to communicate throughout the COVID-19 crisis, even if they didn’t meet up in-person. Lastly, Match’s previous acquisitions of smaller players (including Hinge and Harmonica) kept users locked into its ecosystem.

Match has been firmly profitable over the past three years, and its adjusted profit rose 21% to $212 million on $1.1 billion in revenue in the first half of 2020. Despite the uncertainties regarding COVID-19, Match expects its revenue to grow “at least” 11% in the third quarter and 12% for the full year. Analysts expect its revenue and earnings to grow 14% and 9%, respectively, for the full year.

An easy choice

Back in April, I compared these two stocks and concluded that Match was a better buy than iQiyi. I stand by that choice: Match generates stronger revenue growth, it’s firmly profitable, and it dominates its market. iQiyi’s growth has stalled out due to competition from Tencent and Alibaba, its losses are widening, and it faces allegations of fraud. There’s simply no reason to buy iQiyi when there are better growth stocks — including Match — to choose from.

 




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