Chinese online entertainment service iQIYI Inc (IQ) has issued a statement denying allegations made in a short report by Wolfpack Research.
In its April 7 report, Wolfpack alleges that “IQ was committing fraud well before its IPO in 2018 and has continued to do so ever since.” It estimates that IQ inflated its 2019 revenue by approximately RMB 8-13 billion, or 27%-44%, by overstating its user numbers by approximately 42%-60%.
According to the report, IQ inflates its expenses, the prices it pays for content, other assets, and acquisitions to “burn off fake cash to hide the fraud from its auditor and investors.” The report was also compiled by MuddyWaters Research, which is short the stock.
In response, iQIYI wrote “The Company believes that the report contains numerous errors, unsubstantiated statements and misleading conclusions and interpretations.”
IQ continued by emphasizing that “it has always been and will remain committed to maintaining high standards of corporate governance and internal control, as well as transparent and timely disclosure in compliance with the applicable rules and regulations of the SEC and Nasdaq.”
So far IQ, which is majority owned by Baidu Inc (BIDU), has maintained a bullish outlook from the Street with a ‘Strong Buy’ analyst consensus on TipRanks. Shares traded up 3.22% on Tuesday at $17.30, but slipped to $16.68 in after-hours trading. (See IQ stock analysis on TipRanks)