• Total Revenue: RMB7.2 billion, down 10% annually.
• Membership Services Revenue: RMB4.4 billion, down 13% annually.
• Online Advertising Revenue: RMB1.3 billion, down 20% year over year.
• Content Distribution Revenue: RMB814 million, grew 52% annually.
• Other Revenues: RMB729 million, decreased by 8% annually.
• Content Cost: RMB4.0 billion, down 5% annually.
• Total Operating Expenses: RMB1.4 billion, down 5% annually.
• Non-GAAP Operating Income: RMB369 million with a margin of 5%.
• Operating Cash Flow: RMB243 million, positive for ten consecutive quarters.
• Cash and Cash Equivalents: RMB4.7 billion at the end of Q3.

• Warning! GuruFocus has detected 3 Warning Signs with IQ.

Release Date: November 21, 2024

For the complete transcript of the earnings call, please refer to the full earnings call transcript.

Positive Points

• iQIYI Inc (NASDAQ:IQ) regained the number one position in viewership market share for long-form videos, driven by successful drama releases.
• The company has introduced mini and short dramas, which have gained considerable popularity and offer new monetization opportunities.
• iQIYI Inc (NASDAQ:IQ) is leveraging AI technology to improve business efficiency, including content translation and dubbing for overseas markets.
• The company has launched a Family Account option to enhance user experience and combat unauthorized password sharing.
• iQIYI Inc (NASDAQ:IQ) recorded solid performance in its overseas business, with significant growth in membership revenue in markets like Hong Kong, UK, Brazil, and Australia.

Negative Points

• Total revenues for the third quarter were down 10% annually, with membership services revenue decreasing by 13%.
• Advertising revenue decreased by 20% year over year, primarily due to a decline in brand ad business.
• The company faced challenges in the supply of premium female-oriented and ancient costume dramas, impacting membership revenue.
• Macro headwinds and increased entertainment options have led to more cautious consumer spending.
• Despite advancements, the company experienced a decrease in brand ad revenue due to weak advertiser sentiment amid macroeconomic challenges.

Q & A Highlights

Q: Can management elaborate on the strategy for mini and short dramas? A: Yu Gong, CEO, explained that iQIYI has integrated mini and short dramas into its content ecosystem, complementing traditional long-form videos. Mini dramas are 1 to 5 minutes long, while short dramas are 5 to 20 minutes. The company is focusing on mini dramas, offering them for free to subscribers and introducing a subscription model to enhance membership retention and attract new users. The strategy includes licensing, buyouts, and profit-sharing to develop high-quality content unique to iQIYI.

Q: What is iQIYI's capacity edge in investing in short dramas, and how will it impact content costs? A: Yu Gong, CEO, highlighted iQIYI's advantage in products and technology, particularly on mobile platforms like the iQIYI App and iQIYI Lite. These apps have mature technology, infrastructure, and a strong user base. The company plans to lower investments in low ROI long-form content and allocate budgets scientifically for mini series, leveraging existing partnerships to scale efficiently.

Q: Can you share insights into the strategic consideration behind the family account option? A: Youqiao Duan, Senior Vice President, explained that the family account is a cost-effective shared membership plan designed to enhance user experience, especially for diverse viewing needs within families. It offers standalone accounts with individual passwords and playback history, improving user experience and account security. The initiative aims to combat password sharing and improve membership conversion and revenue.

Q: What is iQIYI's strategy for the production of dramas? A: Xiaohui Wang, Chief Content Officer, stated that iQIYI will focus on high-quality content supply, optimizing production and operational mechanisms for dramas, films, animations, and variety shows. The strategy includes prioritizing premium content with high commercial value, improving production efficiency, and aligning content with societal trends to resonate with contemporary audiences.

Q: How does iQIYI plan to enhance its content ecosystem with long-form videos? A: Xiaohui Wang, Chief Content Officer, emphasized that long-form videos remain core to iQIYI's content ecosystem. The company plans to enhance content quality and commercial revenue through structural optimization, focusing on high-quality works, and strengthening project management to reduce costs and improve efficiency. The aim is to maintain long-form videos as a strong demand among users.

For the complete transcript of the earnings call, please refer to the full earnings call transcript.