World Baidu's iQiyi shares drop after disclosing SEC investigation

13:51  14 august  2020
13:51  14 august  2020 Source:   cnn.com

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iQiyi announced that the Securities and Exchange Commission ( SEC ) has launched a probe into the company. The SEC investigation was prompted by a report from Wolfpack Research in April in which it accused iQiyi of fraud and inflating revenue and user numbers.

Shares in iQiyi Inc., a Chinese Netflix-style video streaming service controlled by search giant Baidu Inc., fell slightly in their trading debut after the company raised .25 billion in a U. S Beijing-based iQiyi sold 125 million U. S . depositary shares at apiece, pricing in the middle of the marketed range.

Investors are getting nervous about iQiyi, the online streaming provider often referred to as the "Netflix of China," as regulators examine allegations of inflated earnings.

a screen shot of a smart phone: iQiyi, a online video platform based in Beijing, China. © Shutterstock iQiyi, a online video platform based in Beijing, China.

Shares of the Nasdaq-listed company fell 11.6% in pre-market trading Friday after iQiyi revealed that the US Securities and Exchange Commission had opened an investigation into its practices following a controversial report alleging massive fraud at the firm. The company said it had already begun its own internal review of the claims, and expected a "positive" outcome.

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Baidu (BIDU) late Thursday reported adjusted first quarter profit that blew past estimates, sending shares in the Chinese search leader up in late trading. IQiyi accounts for roughly 20% of Baidu ' s revenue. Shares in iQiyi fell 4% to 17.95 late Thursday after it released earnings in tandem with Baidu .

Yet Baidu saw significantly increased take-up of its mobile app, plus encouraging gains in website traffic. Adding more gains to an already very bullish day In contrast, video streaming specialist iQiyi -- which was founded and is still majority-owned by Baidu -- fell short of expectations on the bottom line.

The report, released in April by activist short seller Wolfpack Research, accused iQiyi of "committing fraud well before its IPO in 2018," and continuing to do so since then. It alleged that the company had vastly inflated its revenue and user numbers, by margins of up to 44% and 60% respectively.

iQiyi pushed back on the allegations at the time, asserting in a statement that "the report contains numerous errors, unsubstantiated statements and misleading conclusions and interpretations."

Since then, scrutiny of Chinese companies trading on US stock exchanges has increased because of a major scandal at Luckin Coffee, another upstart from China that admitted to fabricating some of its sales numbers. The company was ultimately delisted from the Nasdaq, and its chairman and CEO were both fired.

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Spun off by China-based Baidu (BIDU) and considered the Netflix (NFLX) of China, iQiyi looks to raise .3 billion by offering 125 million shares at a price range of 17-19. That would provide a fully diluted market value of .7 billion. The company accounts for roughly 20% of Baidu ' s revenue.

Baidu ' s billionaire Chairman Robin Li pulled out of talks to buy control of the company's streaming video service iQiyi after failing to reach an agreement on its price and structure. Bloomberg's Haidi Lun reports on "Daybreak Asia."

Wolfpack referred back to the Luckin saga in its report in April, concluding its research by stating: "If what we've said thus far doesn't concern you, all we can say is 'good Luckin.'"

iQiyi is owned by Chinese search giant Baidu, and boasts hundreds of millions of users, mainly in China. The company is known for its deep library of content, including movies and popular TV dramas and reality shows.

Management disclosed the probe during an earnings presentation Thursday, noting that the company had been "cooperating" with US regulators.

"We cannot predict the timing, outcome or consequences of the SEC investigation," it said in a statement.

On a call with analysts, chief financial officer Xiaodong Wang added that the company had started an "internal, independent" review into Wolfpack's allegations shortly after the report came out.

He moved to reassure investors Thursday, saying that the company had built up strong "corporate governance" over the last 10 years.

"We don't know exactly the result and the status right now," he said. "What I can tell you is the voluntary disclosure of this investigation itself actually shows the confidence of the management on the potential results of this internal review."

The Kodak loan: Insider trading in a new garb? .
The DFC loan to Kodak is the first of its kind under the Defense Production Act, and so it is not surprising that it raised a number of new issues. Since we are in unprecedented times, government agencies and regulators need to make changes to adapt to the current situation and fulfill their mission to ensure a level playing field for investors even during this difficult period.Patrick Augustin is associate professor of finance at the Desautels Faculty of Management at McGill University. Francis Cong is a researcher at the Desautels Faculty of Management at McGill University. Marti G. Subrahmanyam is Charles E.

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