Hall of Shame
iQIYI, Inc. (IQ US)
iQIYI, Inc. (IQ) is a Chinese company that offers video entertainment services. The Company provides movies, television dramas, variety shows, and other video contents. iQIYI offers services worldwide. It listed on the Nasdaq in March 2018 raising US$2,42B in its IPO.
April 7, 2020 Wolfpack Research released a report entitled "iQIYI: The Netflix of China? Good Luckin". In its report, Wolfpack said that it's research showed that IQ was committing fraud well before its IPO in 2018 and has continued to do so ever since. Wolfpack stated that IQ:
- overstated its user numbers by approximately 42%-60%.
- inflated its revenues; its 2019 revenue was inflated by approximately RMB 8-13 billion, or 27%-44%.
- Inflated expenses and prices of assets to conceal revenue inflation
- used misleading financial reporting to creates the appearance of a cash generative company
In conclusion, Wolfpack said that IQ had lost money for 10 consecutive years. That IQ’s losses were rapidly accelerating, unlike its growth. IQ lost RMB 10.3 billion in 2019, RMB 1.2 billion more than 2018. It also noted that while paying subscriber growth in 4Q19 was its lowest ever at only 0.7%. IQ’s advertising revenue was down -15% in 2019 and it still had a negative gross margin. To Wolfpack, even these horrific losses were meaningless, considering the abundance of fraud they had covered in the report.
April 7, 2020 iQiyi responded, saying in a statement, “The company believes that the report contains numerous errors, unsubstantiated statements and misleading conclusions and interpretations regarding information relating to the company,”
Wolfpack Research: iQIYI: The Netflix of China? Good Luckin, 7 Apr 2020
Technode: Short Seller Accuses iQIYI of Revenue Fraud, 8 Apr 2020
iQIYI: Annual Report YE Dec 2019
iQIYI: Annual Report YE Dec 2018
iQIYI: Prospectus March 2018