iQIYI delivered in-line 4Q20 results, with rev -0.5% YoY (in line with consensus) and net loss beat. 1Q21E rev guidance beat 0.7%. Subs might see sequential growth in 1Q21E for blockbuster content release, while soft in 2Q21E with moderate content, in our view. In the long run, we keep bullish on its subs momentum and ads recovery, backed by rich content pipeline, price hike, and improving ads sentiment. We slightly lifted its rev by 0.4%/1.7% in FY21/22E with better margin, thus setting a higher DCF-based TP of US$30.2.
- 4Q20 in line. 4Q20 rev was RMB7.5bn, -0.5% YoY, in line with consensus. GAAP net loss narrowed 37.9% YoY to RMB1.5bn, vs. consensus -RMB1.8bn. Margin surprised on well-managed content cost. We expect content cost to be flat in 1Q21E and content cost/rev ratio to decrease to 65% in FY21E. 1Q21E rev guidance came in at RMB7.07-7.53bn, -8% to -2% YoY, with midpoint 0.7% above consensus.
- Rich content pipeline to drive 2021 subs. iQIYI’s subscribers -4.9% YoY to 101.7mn in 4Q20, mainly due to content delay (film and drama supply) since COVID-19. Mgmt are positive on subs outlook in 2021, for rich high-quality content pipeline, coupled with eye-catching CNY movies (to be released in iQiyi later). 1Q21E content pipeline might bring subs upside, such as My heroic Husband <赘婿>, Youth With You Season 3<青你3>. Mgmt expected limited adverse effect with Android price hikes thanks to good retention rate for existing Android subs (with guaranteed price promotion) and new subs. 4Q20/2020 monthly ARPU +1.8%/+5.9% YoY to RMB12.4 /RMB13.3. We forecast its subs rev to grow sequentially in 1Q21E. We are bullish on ARPU’s further upside, backed by rich content pipeline (esp. innovative drama series and blockbuster variety show), previous price hike, and fewer discount.
- Ads recovery on track. Online ads +1.0% QoQ/ -1.3% YoY, recovering sequentially. No. of branding advertisers recovered to almost 2019 level. We expect ads to see double-digit YoY growth in 1Q21E (stable QoQ), with ads sentiment rebound and high-quality content release since mid 4Q20.
- Maintain BUY. To reflect solid topline recovery and margin trend, we slightly lifted its rev by 0.4%/1.7% in FY21/22E, with higher TP of US$30.2 (4.4x/3.8x FY21/22E P/S) from US$23.2. The stock is trading at 3.6x/3.1x FY21/22E P/S, not demanding in our view. We expect subs to recover moderately in 2H21E, and price hikes to unlock long-term potential.
