4 Reasons Baidu Should Divest Its Stake in iQiyi – Motley Fool

Baidu (NASDAQ:BIDU), the Chinese tech giant that owns the country’s largest online search engine, launched its online video platform iQiyi (NASDAQ:IQ) in 2010.

Baidu spun off iQiyi in an IPO in 2018 but retained a majority stake in the company, which still generated 28% of its total revenue in fiscal 2020. In the past, that relationship was beneficial because iQiyi’s stronger revenue growth offset the ongoing declines in Baidu’s core advertising business.

Unfortunately, iQiyi’s growth gradually fizzled out due to competition from similar platforms like Tencent (OTC:TCEHY) Video and Alibaba‘s (NYSE:BABA) Youku Tudou, as well as short video platforms like ByteDance‘s Douyin (known as TikTok overseas) and Kuaishou.

As a result, iQiyi is becoming more of a liability than an asset for Baidu and the company should divest its remaining 56% stake in iQiyi. Here are four simple reasons why.

iQiyi's video platform.

Image source: iQiyi.

1. iQiyi’s growth has peaked

iQiyi’s number of paid subscribers declined 5% year over year to 101.7 million in the fourth quarter of 2020. Its revenue dipped 1% to 7.5 billion yuan ($1.1 billion) due to declines in both subscription and advertising revenue.

iQiyi’s revenue rose 2% for the full year, but that growth mainly occurred in the first half of the year when the pandemic sparked a temporary jump in stay-at-home subscribers. After hitting 118.9 million subscribers in the first quarter, that figure declined sequentially over the following three