Better Buy: iQiyi vs. Match Group

Better Buy: iQiyi vs. Match Group

Both growth stocks generated big gains in 2019 before tumbling in 2020 — but one of them could be poised for a comeback after the smoke clears.

iQiyi (NASDAQ:IQ) and Match Group (NASDAQ:MTCH) both generated robust returns in 2019. Shares of iQiyi, one of China’s top video platforms, rallied more than 40%. Shares of Match, the online dating giant that owns Tinder and other popular dating apps, surged over 90%. 

Yet 2020 has been much tougher, as the COVID-19 pandemic hammered the broader markets. iQiyi’s slowing growth, lack of profits, and recent allegations of fraud caused its stock to tumble nearly 20%. Match’s stock also dipped nearly 20% as investors evaluated its abrupt CEO change and the pandemic’s impact on online dating habits.

However, investors who thought both stocks were too hot to handle last year might be wondering if either stock is worth buying after the COVID-19 crash. Let’s dig deeper to see which stock is the more appealing investment.

A couple watches a video on a tablet while sitting by a river.

Image source: Getty Images.

How do iQiyi and Match make money?

iQiyi operates a freemium model for streaming videos. Free users can watch a limited library of ad-supported content, while paid users gain access to a full library of ad-free videos. iQiyi also generates revenue by sub-licensing its content to other platforms.

Its total number of subscribers rose 22% annually to 106.9 million lasts quarter. 98.9% of those members were paid subscribers, while the remaining sliver used free trials. iQiyi frequently offers free trials via partnerships with companies like Xiaomi, which preinstalls iQiyi on its set-top boxes, and JD.com, which bundles free trials with its JD Plus membership program.

iQiyi was spun off from Baidu (NASDAQ:BIDU) two years ago, but the online search giant still retains a 56% stake in the streaming video platform. Last quarter, iQiyi generated 52% of its revenue from subscriptions, 25% from ads, 12% from content distribution, and nearly 12% from “other” businesses like online games.

A streaming video being played on a laptop.

Image source: Getty Images.

Match also offers a freemium model for most of its apps. For example, paid Tinder users gain the ability to undo swipes, swipe overseas, use “super likes” to get a user’s attention, “boost” the visibility of their profiles, and see who likes them.

Match’s total number of paid subscribers across all its apps grew 19% annually to 9.8 million last quarter. Within that total, Tinder’s subscribers rose 36% to 5.9 million, and over 70% of those members were locked into its top “Gold” tier, which costs $15 per month in most markets for users under the age of 30.

Match was spun off from IAC (NASDAQ:IAC) over four years ago, and IAC plans to fully divest its remaining stake by the second quarter of 2020. Last quarter Match generated 98% of its revenue from “direct” — or subscription-based — revenue. The remaining 2% came from its “indirect” revenue, which mainly comes from online ads.

Which company is growing faster?

iQiyi and Match both reported slower growth in 2019, but iQiyi’s deceleration raises more red flags than Match’s slowdown:

Revenue Growth (YOY)

2018

2019

iQiyi

52%

16%

Match Group

30%

19%

Source: Match Group annual reports.

Match’s slowdown wasn’t surprising since it lapped the company’s introduction of Tinder Gold — which added $5 to each $10 Plus subscription across most developed markets. Back in February, Match guided for 17%-19% revenue growth in the first quarter of 2020, and “mid-teens” revenue growth for the full year.

In late March, it warned that its first-quarter growth would come in at the “low end” of that forecast as the COVID-19 pandemic spread, but it didn’t reduce its full-year guidance. Match remains consistently profitable, thanks to its overwhelming dependence on high-margin recurring revenue instead of lower-margin ads. 

iQiyi’s slowdown was more troubling since it indicated the company was losing ground to rivals like Tencent (OTC:TCEHY) Video. In late February it provided a disappointing forecast for just 2%-6% annual revenue growth in the first quarter, citing macro and competitive challenges. It didn’t offer any guidance for the full year.

iQiyi isn’t profitable, due to high content acquisition and hosting expenses. Its net loss widened from 9.1 billion yuan ($1.29 billion) in 2018 to 10.3 billion ($1.46 billion) in 2019, which means that it’s spending about $1.36 for each dollar of revenue.

To make matters worse, iQiyi was recently hit by allegations of inflated revenue and user numbers by an activist research firm called Wolfpack Research. iQiyi claims that Wolfpack’s allegations contain “numerous errors, unsubstantiated statements, and misleading conclusions and interpretations,” but the attack could weigh down the stock unless iQiyi definitively counters the accusations.

The winner: Match Group

Match arguably has a more sustainable business model than iQiyi. It generates stable profits, doesn’t face as much competition, and isn’t being challenged by activist short-sellers, and the stock trades at less than 30 times forward earnings. iQiyi might eventually bounce back, but I need to see narrower losses and a clear rebuttal of Wolfpack’s allegations before I would consider buying its stock.


Leo Sun owns shares of Baidu, JD.com, and Tencent Holdings. The Motley Fool owns shares of and recommends Baidu, JD.com, Match Group, and Tencent Holdings. The Motley Fool recommends iQiyi. The Motley Fool has a disclosure policy.

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