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1、ReportDate:April7,2020Company:iQIYI,Inc.Ticker:IQUSIndustry:InternetMediaStockPrice(USD):$16.76MarketCap(USD,Millions):$12,295.9iQIYI:TheNetflixofChina?GoodLuckinIntroductionOurresearchshowsusthatiQIYI,Inc.(“IQ”)wascommittingfraudwellbeforeitsIPOin2018andhascontinuedtodosoeversince.Likeso
2、manyotherChina-basedcompanieswhoIPOwithinflatednumbers,IQisunabletolegitimatelygrowtheirbusinessenoughtotrueuptheirfinancialstatements.WeestimateIQinflatedits2019revenuebyapproximatelyRMB8-13billion,or27%-44%.IQdoesthisbyoverstatingitsusernumbersbyapproximately42%-60%.Then,IQinflatesitsex
3、penses,thepricesitpaysforcontent,otherassetsandacquisitionsinordertoburnofffakecashtohidethefraudfromitsauditorandinvestors.Weconductedinpersonsurveysof1,563peoplewithinIQ’stargetdemographicinChinaduringOctoberandNovember2019andfoundthatapproximately31.9%ofIQusershaveaccesstoitsVIP-onlyco
4、ntentthroughtheirmembershipswithIQ’spartnerssuchasJD.comorXiaomiTV.IQaccountsfordualmembershipsonagrossbasis,meaningitrecordsthefullamountofrevenueandrecordsitspartners’shareasexpenses.ThisallowsIQtoinflateitsrevenuesandburnofffakecashatthesametime.WealsoobtainedChinesecreditreportsforall
5、ofIQ’sVIEsandWFOEssince2015.WhencomparedtoIQ’sprospectus,wefoundthatthedeferredrevenuesreportedtotheSECwereinflatedby261.7%,165.5%and86.2%in2015,2016and2017,respectively.Deferredrevenueisabalancesheetaccountthatariseswhencustomersprepayforaservicetobedeliveredinthefuture.BecauseIQ’ssubscr
6、iptioncustomersprepay,mostofitsrevenuesareafunctionofdeferredrevenue.Thesepre-IPOoverstatementsinherentlycauseIQ’spost-IPOrevenuestocontinuetobeoverstated.ArguablyoneofthemostegregiousexamplesofaccountingfraudIQcommitsistheinflationofitsbartertransactionrevenue.Bartersublicensingrevenuesa
7、redeterminedbyIQ’sinternalestimatesofthevalueofthecontentittraded.Inotherwords,IQ’smanagementcaneffectivelyassignanyvaluetheywanttothesetransactions,providinganeasyopportunitytoinflateitsrevenues.Basedonthehighest-endestimatedvaluepernon-exclusiveepisodeprovidedbyaf
