爱奇艺做空报告(英文版).docx

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1、iQIYI:TheNetflixofChina?GoodLuckinIntroductionOurresearchshowsusthatiQIYI,Inc.(“IQ”)wascommittingfraudwellbeforeitsIPOin2018andhascontinuedtodosoeversince.LikesomanyotherChina-basedcompanieswhoIPOwithinflatednumbers,IQisunabletolegitimatelygrowtheirbusinessenoughtotrueuptheirfinancialstatements.Wee

2、stimateIQinflatedits2019revenuebyapproximatelyRMB8-13billion,or27%-44%.IQdoesthisbyoverstatingitsusernumbersbyapproximately42%-60%.Then,IQinflatesitsexpenses,thepricesitpaysforcontent,otherassetsandacquisitionsinordertoburnofffakecashtohidethefraudfromitsauditorandinvestors.Weconductedinpersonsurve

3、ysof1,563peoplewithinIQ’stargetdemographicinChinaduringOctoberandNovember2019andfoundthatapproximately31.9%ofIQusershaveaccesstoitsVIP-onlycontentthroughtheirmembershipswithIQ’spartnerssuchasJD.comorXiaomiTV.IQaccountsfordualmembershipsonagrossbasis,meaningitrecordsthefullamountofrevenueandrecordsi

4、tspartners’shareasexpenses.ThisallowsIQtoinflateitsrevenuesandburnofffakecashatthesametime.WealsoobtainedChinesecreditreportsforallofIQ’sVIEsandWFOEssince2015.WhencomparedtoIQ’sprospectus,wefoundthatthedeferredrevenuesreportedtotheSECwereinflatedby261.7%,165.5%and86.2%in2015,2016and2017,respectivel

5、y.Deferredrevenueisabalancesheetaccountthatariseswhencustomersprepayforaservicetobedeliveredinthefuture.BecauseIQ’ssubscriptioncustomersprepay,mostofitsrevenuesareafunctionofdeferredrevenue.Thesepre-IPOoverstatementsinherentlycauseIQ’spost-IPOrevenuestocontinuetobeoverstated.Arguablyoneofthemostegr

6、egiousexamplesofaccountingfraudIQcommitsistheinflationofitsbartertransactionrevenue.BartersublicensingrevenuesaredeterminedbyIQ’sinternalestimatesofthevalueofthecontentittraded.Inotherwords,IQ’smanagementcaneffectivelyassignanyvaluetheywanttothesetransactions,providinganeasyopportunitytoinflateitsr

7、evenues.Basedonthehighest-endestimatedvaluepernon-exclusiveepisodeprovidedbyaformerIQemployeeinvolvedincontentacquisition,IQwouldhaveneededtobarterthelicensesfor~3.9xand~3.2xthetotalnumberofTVseriesepisodes