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iQiyi, a Xiamen-based streaming platform, is in hot waters after it allegedly blew up its numbers by up to 44 percent. Following a recent accusation from the “activist-research, and due-diligence firm” Wolfpack Research, the Securities and Exchange Commission launched an investigation against the streaming app and asked to review documents that support the Chinese company’s revenue and audience reports.
In April of 2020, Wolfpack Research exposed the alleged 27 to 44 percent inflation in iQiyi’s reported 2019 revenue, which is approximately $1.13 to $1.98 billion. The firm also said that the number of iQiyi users is about 60 percent less than the company’s hundred million users press release.
Given this massive news, the Securities and Exchange Commission intends to cross-examine the streaming giant’s operational and financial records starting from January of 2018, including acquisition, investment, expenses, and audience reports.
In light of this investigation, iQiyi assured that it would be compliant and cooperative in getting to the bottom of Wolfpack Research’s allegations. It stated that private and professional advisers would spearhead an internal probe as well.
The closing of the market’s second-quarter suggested a significant change in the Chinese streaming platform’s stature. The shares hit an 18% decline during the extended trade and ended with a 12.36% shrinkage by the after-hours trade.
Wolfpack Research’s accusations against iQiyi and the SEC’s investigation couldn’t have come at the worst possible time, as another Nasdaq-listed Chinese company, Luckin Coffee Inc., is also under immense pressure and scrutiny for falsifying sales of approximately $323.9 million in 2019. Nasdaq expunged the said company after this incident.
The United States Senate put a bill in place that allows intensive audits on Chinese companies registered on Wall Street. This bill also threatens to delist any firm that will refuse to comply.
According to the Netflix-style Chinese streaming platform, the impacts brought by the allegations will be evident. The predicted net revenue by the end of the third quarter is expected to fall flat with a 6 percent decrease each year.
Media buzz surfaced about iQiyi looking into alternative listings in Hongkong after the Wolfpack accusations went public. News about iQiyi being in touch with Credit Suisse also gave the green light to other Chinese companies to seek a listing that is closer to their country.
Many Chinese firms under a similar heat consider subsidiary listings that are closer to their country to keep the company afloat, be able to rebrand and expand the business again after it recovers.