Shares of Chinese streaming service iQiyi plunged in after-hours trading in the US after the company announced that the Securities and Exchange Commission (SEC) had launched an investigation into company.
The SEC investigation was prompted by an April report from Wolfpack Research, which describes itself as an “operational and appraisal research firm.” In that report, Wolfpack accused iQiyi of cheating and exaggerating its numbers.
iQiyi said the SEC is “looking to produce certain financial and operating records as of January 1, 2018, as well as documents related to certain acquisitions and investments already. is identified in a report released by short-selling company Wolfpack Research in April 2020. “
The Netflix-style streaming giant also said it “asked professional advisers to conduct an internal review of some of the key allegations” in the Wolfpack report.
Wolfpack Research alleges iQiyi increased 2019 revenue to about 8 billion yuan ($ 1.13 billion) to 13 billion yuan ($ 1.98 billion) – or from 27 percent to 44 percent. Wolfpack also claimed that the streaming company exaggerated the number of users and the cost.
Nasdaq-listed iQiyi shares fell more than 18% in extended trading but have offset some of those losses. The company fell 12.36% at the end of overtime trading.
Yu Gong (center), founder and CEO of iQiyi (IQ) based in China, rang the Opening bell at Nasdaq MarketSite in Times Square along with employees and investors to celebrate Initial public offering (IPO) on March 29, 2018 in New York City.
The SEC’s investigation of iQiyi comes amid increasing scrutiny of Chinese companies listed in the United States following the Luckin Coffee scandal earlier this year.
Chinese firm Luckin Coffee admitted to falsifying sales for 2019. The company was later delisted on the Nasdaq in June.
In May, the US Senate passed a bill to strengthen audit oversight of Wall Street-listed Chinese companies, with the threat of delisting if they do not comply.
In 2018, iQiyi was ripped off from Chinese search giant Baidu in a U.S. IPO that raised more than $ 2.2 billion. Baidu, also listed in the US, has a majority stake in iQiyi. As Baidu faces increasing competition in China – in key products like search and advertising – iQiyi becomes a key part of its growth outlook.
In the second quarter, iQiyi member revenue increased 19% year-on-year, while online advertising revenue fell 28% year-on-year, according to Baidu earnings report.
Baidu shares fell 7% in long-term trading Thursday as a result of an SEC poll of iQiyi.