U.S.-based securities evaluation agency and activist investor Wolfpack Analysis has publicly accused Chinese language streaming platform iQIYI of fraud.

iQIYI “massively [inflated] its consumer numbers and income whereas on the identical time hiding the fraud from auditors and buyers by overpaying for content material, acquisitions and different belongings,” Wolfpack mentioned. “IQIYI is nearing its 10-year anniversary and it has by no means been worthwhile and its losses are accelerating. Though folks name it the ‘Netflix of China,’ it’s removed from Netflix.”

In a brief assertion, iQIYI replied: “The corporate believes that the [Wolfpack] report accommodates quite a few errors, unsubstantiated statements and deceptive conclusions and interpretations concerning data referring to the corporate.”

IQIYI was spun-off from Chinese language search market chief Baidu in a March 2018 IPO, with ADR shares supplied at $18 every. Its inventory traded up 3.22% at $17.30 per ADR on Tuesday, however slipped to $16.68 after hours. On the closing worth, the corporate has a market capitalization of $12.7 billion.

Wolfpack says its 37-page report was “based mostly on months of analysis together with polling over 1,500 customers in the important thing cities in China, digging up the Chinese language credit score studies, which present the actual numbers, and conducting interviews with insiders and former insiders.”

“We estimate [iQIYI] inflated its 2019 income by roughly RMB 8-13 billion, or 27%-44%. [iQIYI] does this by overstating its consumer numbers by 42%-60%. Then, [iQIYI] inflates its bills, the costs it pays for content material, different belongings and acquisitions with the intention to burn off faux money to cover the fraud from its auditor and buyers,” the Wolfpack report says.

IQIYI and its rival Tencent Video have lengthy disputed which firm is China’s streaming market chief. In its fourth quarter and 2019 full yr monetary assertion, revealed on the finish of February, iQIYI mentioned that it had 106.9 million subscribers, of which 98.9% have been paying subscribers.

Wolfpack says the way in which that iQIYI booked subscription income is suspicious, and that iQIYI wrongly books income from video subscriptions introduced in below twin membership schemes involving third celebration corporations, equivalent to bank card and cellphone suppliers.

Wolfpack in contrast the quantities of promoting income that iQIYI acknowledged to buyers with that filed by its promoting corporations and reported to China’s State Administration for Trade and Commerce, and concluded that the corporate had exaggerated 2017 advert revenues by as a lot as thrice.

Content material acquisition and manufacturing are a big a part of the prices of a streaming firm, and Wolfpack alleges a number of frauds on this space. It mentioned that iQIYI inflated the price of acquired content material, overstated the worth of content material that it bartered, and indulged in accounting tips concerning content material that had the obvious impact of turning money outflows into optimistic money stream.

Additional, Wolfpack alleges that iQIYI engaged in a minimum of two misleading firm acquisitions, one at Xin’ai Sports activities, the opposite involving a controversial video games firm Skymoons.

Wolfpack founder Dan David was one of many lead characters within the 2017 documentary, “The China Hustle,” which informed the story of billions of {dollars} of fraud dedicated by Chinese language corporations towards U.S. buyers. One of many key factors in that movie was that Chinese language corporations should precisely report their monetary particulars to Chinese language authorities, however that they don’t seem to be required to current the identical data abroad.

One other well-known funding agency, Muddy Waters mentioned by way of Twitter that it additionally has a brief place in iQIYI inventory.