On the evening of April 7, American Muddy Waters Research and Wolfpack Research announced respectively that they were conducting a comprehensive investigation of iQIYI in the belief that iQIYI had engaged in deceptive practices in terms of reporting users and revenue data.
“IQIYI’s 2019 revenue was inflated by 8 billion to 13 billion yuan, accounting for 27% to 44%, and its users were inflated by 42% to 60%,” Wolfpack Research wrote in a short report. The research firm has also accused auditor investors of fraud.
IQIYI shares fell more than 10% at one point in the session as a result of the incident. IQIYI shares fell 3.58% in after hours trading as of press time.
In response, iQIYI issued a statement saying it was aware of and had reviewed the report by Wolfpack Research. The company believed that the report contains numerous errors, unsubstantiated statements and misleading conclusions in relation to iQIYI. The streaming company said it will make transparent and timely disclosures in accordance with NASDAQ regulations.
Wolfpack Research questioned iQIYI’s data well before its initial public offering in 2018 and continues to this day, accusing iQIYI of listing on inflated numbers. In addition to the statistical inaccuracies, the firm argues that iQIYI could not reasonably grow its business, citing its accelerating losses, slowing growth of paying subscribers, falling advertising revenues and negative gross margins.
IQIYI was listed on NASDAQ in March 2018, and has been losing money since the IPO. The company posted a net loss of 10.3 billion yuan for the full year of 2019, up from 9.1 billion yuan in 2018.
According to iQIYI’s financial results in 2019, its total revenue for the year was 29 billion yuan, while Wolfpack Research estimates iQIYI’s revenue to be between 16 and 21 billion yuan.