J.P. Morgan analysts expect earnings upgrades for iQiyi in the next few quarters to steer share price outperformance. iQiyi is trading at a discount to Bilibili now and the analysts expect the valuation gap to narrow due to their diverging monetization outlook — the analysts think iQiyi has shown its ability to achieve healthy earnings growth, while Bilibili has not.
The analysts anticipate Q2’23 results to be the first share price catalyst for both. The firm expects iQiyi Q2’23 profit to beat consensus by 29%, while its Q3’23 revenue estimate for BILI is 13% below consensus. The analysts have a three-month time frame for the pair trade, and expect the next two quarterly earnings and key product launches as important events to watch.
The firm reiterated its positive view on iQiyi with a price target of US$11 and is optimistic on the company’s earnings growth in the next two to three years, helped by more benign competition in China’s long-form video market, and iQiyi’s strong original content production capability. The firm also expects earnings upgrades in the next few quarters to steer a share price re-rating.
The analysts downgraded Bilibili to Unerweight with price targets of US$13/HK$100 for BILI US/9626 HK (23%/25% potential downside).
The analysts said that while they remain positive on Bilibili’s strong user engagement among China Gen-Z users, they have become incrementally cautious on the company’s monetization outlook and firm’s 2023/24 revenue estimates are now 8%/11% below consensus.
The main concerns are that the the analysts think that the competition in China’s mobile game market has increased since Q2’23, so the hit-and-miss risk for new mobile games (especially Pretty Derby) has grown. The analysts have also become more cautious on the live streaming revenue (booked in VAS) outlook in 2023 due to higher regulatory risk (JPMe 2023 VAS revenue is 8% below consensus).
Besides future quarterly earnings which could show monetization capability and cost-control initiatives for both companies, the analysts believe that some important events to watch out for include — for Bilibili its the launch of major game pipelines and new ads format which can effectively monetize its video traffic; for iQIYI its the launch of blockbuster drama and additional cooperation with peer long-form/short-form video platforms.