Why iQIYI, Inc. Stock Jumped 35.3% in January

What happened

Shares of iQIYI (NASDAQ:IQ) gained 35.3% in January, according to data from S&P Global Market Intelligence. There wasn’t much in the way of company-specific news in the month, but shares rebounded from the big sell-offs that closed out 2018 as overall market sentiment became more positive.

IQ data by YCharts.

Last year’s final quarter saw the market trudge into bearish territory, and growth-dependent Chinese tech stocks were hit particularly hard. Most of iQiyi’s big January stock gains were tied to a rebound from big sell-offs at the end of 2018.

Image source: Getty Images.

So what

The Invesco China Technology ETF, which combines 70 different tech stocks from the country into a fund, rose roughly 14% in January — evidencing strong momentum in the sector. The fund lost roughly 18% of its value from October to December, and iQiyi stock fell roughly 45% over that stretch, so it’s not surprising to see that the streaming video stock posted a big comeback as investors poured back into Chinese tech stocks. 

Now what

iQiyi could have a long runway for growth as the Chinese entertainment and streaming video industries continue to grow, but the pace at which its losses have accelerated across its first three quarters as a public company highlights the stock’s high-risk, high-reward dynamic. The company counted roughly 81 million paying members at the end of September, up from roughly 50 million subscribers at the start of 2018 and just 5 million subscribers in May 2015, but the bullish thesis involves trusting that the company will be able to leverage its large and fast-growing user base to deliver consistent profits at some point. 

The company is scheduled to report its fourth-quarter and full-year results after market close on Feb. 21. Management is guiding for sales to come in between $943.5 million and $982.8 million — representing 46% year over year sales growth at the midpoint of its target.

Keith Noonan owns shares of iQiyi. The Motley Fool recommends iQiyi. The Motley Fool has a disclosure policy.