The Analysis of Profitability for iQIYI and Netflix

Abstract

The profitability analysis in this report compares the return on equity (ROE), marginal income, and return on net operating assets (RNOA) of iQIYI and Netflix. Regarding ROE, iQIYI has been experiencing negative ROE, indicating that the company has been operating at a loss and its profitability is below average. In contrast, Netflix has maintained a positive ROE, indicating profitability and value generation for shareholders. However, iQIYI's net loss has been declining, and its ROE has been increasing, suggesting a gradual recovery in profitability. The differences in ROE between iQIYI and Netflix can be attributed to their financial performance, business models, and cost structures. Netflix's positive ROE is a result of consistent growth, increasing net profit, and successful equity investments. On the other hand, iQIYI's negative ROE reflects financial challenges and losses incurred in recent years. The analysis of marginal income reveals that Netflix outperforms iQIYI in terms of net income and sales, with Netflix's sales being approximately six times larger. Factors contributing to the differences in marginal income include market dominance, content offerings, pricing strategy, and operational efficiency. Netflix's global recognition, high-quality content, pricing strategy, and operational scale have enabled higher sales and profitability compared to iQIYI.The analysis of RNOA shows that Netflix has a significantly higher RNOA ratio compared to iQIYI, indicating higher efficiency in generating profit from operating activities. iQIYI's negative RNOA ratio suggests its inability to generate profits from operating activities. However, iQIYI's RNOA ratio has shown significant improvement in 2020 compared to 2019, indicating enhanced profitability. Factors contributing to the differences in RNOA ratios include competition, content production costs, subscriber growth, cost optimization measures, and monetization strategies. In conclusion, Netflix demonstrates better profitability than iQIYI in terms of ROE, marginal income, and RNOA. Netflix's consistent growth, international expansion, high sales, and operational efficiency contribute to its superior profitability. iQIYI, although facing challenges, shows signs of improvement in its profitability indicators. The differences between the two companies can be attributed to various factors such as financial performance, business models, cost structures, market reach, content offerings, pricing strategies, and operational efficiency.