Earnings season has taken its first bite out of one of our holdings. iQIYI (IQ) reported its latest quarterly results after the close on Tuesday and the news was not well received. The company’s revenue topped $1 billion for the first time, which represents growth of 35%. And while the loss shrank, the firm’s bottom line was deep in the red, with an operating loss of $377 million. There was plenty of good news, especially concerning subscriber growth, but investors are not inclined to look for any silver linings just now.
There is no doubt that iQIYI is a company with enormous potential and occupies a potentially profitable niche in the Chinese entertainment ecosystem. Our history with the stock has seen a string of changes over the months, starting with a stretch on the watch list, a buy of a half position on May 17 when the stock was trading at 20, a move to Hold on June 28 as the stock fell from its high at 46, another brief spell as a buy in late July and a hold again on August 15. We have given IQ every chance, letting our profit margin keep us in the stock while we waited for investors to come back to Chinese stocks.
That may yet happen, but with the Cabot Emerging Markets Timer solidly negative and IQ now showing us a slight loss, it’s best to take action to protect our capital.
I will sell the portfolio’s half position in IQ immediately and recommend that you do the same. SELL.