Why Baidu and iQiyi Slumped

Investors should always exercise caution investing in companies based in China. This time, the Securities and Exchange Commission is probing iQiyi (NASDAQ:IQ). The company revealed that the SEC is seeking financial details back from Jan 1, 2018. It is also looking at certain acquisitions that a short-seller firm, Wolfpack Research, identified.

In the second quarter, IQ posted uninspiring results. Revenue grew 4% Y/Y to $1 billion. It lost $181.4M. Still, the operating loss margin was 17%, down from 26% last year. Though the loss fell considerably to 28 cents, compared to an RMB3.22 loss last year, subscription growth is sluggish. It rose by only 4%.

Baidu (NASDAQ:BIDU) is considered a Google search engine of China but as usual, it posted a revenue dip. Last quarter, BIDU stock rose because of a rebound in the quarter after the COVID-19 lockdown ended in China. Revenue fell 1% Y/Y. Baidu may appeal to value investors. Non-GAAP operating income nearly doubled.

IQ and BIDU stock both have political risks ahead. Trump’s ban on TikTok and an order for its owner to divest of the video-sharing unit within 90 days. The U.S. order will have repercussions for China-based stock valuation. For example, if TikTok is worth $50 billion, it might have to sell for half. The instant 50% loss in value (actual numbers unknown) suggests BIDU and IQ stock will trade at a bigger discount.