Shares of Nasdaq-listed iQIYI, dubbed China’s Netflix, plunge as SEC probes alleged inflation of revenues, subscriber numbers

The video streaming firm’s shares plunged 18 per cent after hours, as it revealed the US financial regulator has launched a probe into allegations made by a short-seller

iQIYI predicts net income in the third quarter will drop as much as 6 per cent year over year

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iQIYI said it has hired professional advisers to conduct an internal review into some of the main allegations in the Wolfpack Report. Photo: Shutterstock

Published: 1:12pm, 14 Aug 2020Updated: 10:52pm, 14 Aug 2020

Chinese video streaming company iQIYI, sometimes dubbed China’s Netflix, saw its shares plunge after hours in New York as it revealed it was being probed by US financial watchdogs and that its third-quarter revenue is likely to drop.

The Securities and Exchange Commission (SEC) is seeking financial and operating records dating back to the start of 2018, as well as “documents related to certain acquisitions and investments that were identified in a report issued by short-seller firm Wolfpack Research in April 2020,” iQIYI said on Thursday as it disclosed its second-quarter financial results.

The Beijing-based company, which claims to have over 100 million users, was accused by activist short sellers Wolfpack Research and Muddy Waters in April of inflating its 2019 revenue by up to 44 per cent, and its user numbers by 60 per cent.

The allegations come hot on the heels of the Luckin Coffee scandal. Seen as the Chinese rival to Starbucks, the coffee chain in April fabricated sales of 2.25 billion yuan (US$323.9 million) and revenue of 2.12 billion yuan, which led to tighter scrutiny from Washington of Chinese companies listed in the US.

The Xiamen-based firm was struck off from the Nasdaq exchange in June, and is now entangled in a restructuring process.

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