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Wolfpack Research, which describes itself as an “activist research and due-diligence firm”, released a report on Tuesday, alleging that
The company pushed back against the report and said it believes it contains “numerous errors, unsubstantiated statements and misleading conclusions and interpretations.”
iQiyi allegedly ‘overstating’ numbers
“IQ does this by overstating its user numbers by 42%-60%. Then, IQ inflates its expenses, the prices it pays for content, other assets and acquisitions in order to burn off fake cash to hide the fraud from its auditor and investors,” the research firm said in its report.
Wolfpack said it used a mixture of publicly available sources, data obtained from private sources like advertising companies as well as surveys the research firm conducted and a former employee of the streaming service.
Users have to pay for
“This allows IQ to inflate its revenues and burn off fake cash at the same time,” Wolfpack Research claimed.
Wolfpack also takes
“Because IQ’s subscription customers prepay, most of its revenues are a function of deferred revenue. These pre-IPO overstatements inherently cause IQ’s post-IPO revenues
The Chinese firm also allegedly inflated its so-called barter transaction revenue. This is revenue that
“The Company emphasizes 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 Securities and Exchange Commission and the Nasdaq Global Select Market.”
A Baidu spokesperson
Chinese firms under the spotlight
Muddy Waters assisted Wolfpack in the research, and both firms said they took short positions against
Earlier this year, Muddy Waters said it was shorting Luckin Coffee’s stock which is listed in the U.S.
Then just last week, Luckin Coffee disclosed that an internal investigation found that its chief operating officer fabricated 2019 sales by about 2.2 billion yuan ($310 million). Its stock tanked 80% after that statement.