iQIYI (IQ) 30 Aug 222022 Q2 Earnings call transcript

Thank you for standing by, and welcome to the iQIYI Second Quarter 2022 Earnings Conference Call. All participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. [Operator Instructions] I would now like to turn the conference over Ms. Chang You, Investor Relations Director. Ms.

proceed. please You,

Investor Hello second operator. results thank for the you released ir.iqiyi.com. Thank XXXX everyone earnings iQIYI’s Company’s on available quarter and Company’s website conference joining at today you, are and Relations call. were The

Marketing Mr. today Technology our CFO; and Wenfeng our Gong, our Xiaohui Liu, Mr. Officer; Officer; Mr. Wang, Wang, our Officer; our On CEO; are Founder, Chief Jun Chief Mr. Ms. the Vivian CMO, Yu call Content CTO, Wang, Mr. Director CCO, Chief

who Youqiao Vice and Jun membership give Yang, Mr. operations session. Duan, Xianghua the of Youqiao and business; the go our and will through the of in join Wenfeng, Senior and Jun, financials. Gong Vice President President Mr. the Vivian, Company’s highlights, Mr. Xianghua business will a Gong overseas Senior followed Q&A and brief overview will movies prepared by of After remarks, business. Xiaohui,

please made Reform will XXXX. note Securities today Litigation that Act discussion safe Before the Private of the we provisions under proceed, U.S. the statements, of forward-looking contain harbor

undertake the may Forward-looking that risks call in SEC. but over Potential ahead. iQIYI that, not any the and except include, subject actual turn results now from to current and go under obligation statement as risks Please uncertainties forward-looking to with required uncertainties differ does any not will our update expectations. to Gong. With applicable those to, public statements outlined I limited are our to law. Mr. filings are materially cause

future. second take again. our importantly, quarter, made quarter, our I’m report in pleased views In the on the second share to once everyone. Company to more opportunity the breakthroughs very Hello, on the this but progress

significantly, we media QX continued the our consecutive the made Despite for profit and two, weak in companies. generated strong and for achievements first still grow strategy execution QX; quarters two of Such sequential of of we our had an and following of in most optimization improvements. macro to achieved also flow positive in one, and membership three economy As time. impact business cost achieved challenging resilience non-GAAP growth the very extremely fully we results we cash around on improved operating demonstrated These results efficiency all environment, business were of the great year-over-year; strong business. operating flow centered that resurgence cash COVID three, the our know, aspects: the

two consecutive market face drastically For us we financial to improved ever-changing quarters, healthiness, while the targets ease. with our enabling reached operational our environment

the out completed like in Calm and time. that pursue growth, not would upgrade fuel its storm. confidence cash starting will successfully has significant the strategy to strategy our financial gives It to expense us and transformation which growth Growth, of business our second demonstrated a same the Our quarter iQIYI third healthiness quarter but has features: at the burn. solid call following We it this our year, which the the self- at sailed improve one, to performance of from the also the

We cycle and and ROIs. investment cash in of would Two, higher will certainty should resources invest We actively high for and degree more with high both business long pursue but growth core opportunities Rather, the cautious growth investment. about projects would and Three, even with grow profit opportunity profit to and structure, stay efficiency. operational we iQIYI’s revenue, growth customers passion, and embrace faster would our in organizational lean with the not value revenue we challenges will expenses. Capitalizing than revenue. than the profit. grow result faster users current have maintain higher the operating provided improve

more stream and better We content. and will premium produce

stakeholders. our interests customers, the and our and returns We of strategy hope can and drive Growth and customers, the our us better of value greater should follow. for users the Growth improve create and business further strategy motivate Calm us can profit will help future. and that growth The healthiness the revenue align financial all our Calm We users, in

Now, the quarter business Starting for services. business year. is this the in business most segment the second go of membership with segments each of through let’s important Membership performance us.

X% million, membership to strategies contributed support up X.X growth quarters. average was We and RMB revenues The maintained year-over-year. to allocate targeting continuous for at consecutive XX.XX, second was are subscribing content the resources of daily and and refined the our determined the year-over-year. the our X% ARM members membership were six total business second devices, of a and was operating healthy diversified The strategy annual has execution of RMB TV value roll offerings, that growth. In quarter number out up billion, ARM guarantee members. quarter, monthly XX.X premium newly-launched our package to for outcome and positive increased rate perception or consistent above the X%

growing the around monthly in we First, TV By on on TV in emphasizing acquisition actively second users, XX% on members new value we plan on increased active membership platinum member demand TV quarter. benefits TV the members side. devices drove the launched TV, strengthening devices. May and of annually Targeting experience of by

new we growth and back churn Secondly, strategy to continued viewing based retention, refine operating paying and preferences increase our drive users. to member member on win

user the continued to during varied high-quality content that to quarter the content caters was different of demands we driver launch cohorts. as premium Another diversified

launch. early broadcasting. Members show of day model million of our a were the example, X.X exclusive adopted The life platform the Rap the highest With It XXXX access, Douban We revenue members. its well launched performance. For the original of stories membership public access our generating Greatness late Ordinary as on in China revenue and content, for X.X heart-warming positive of about list for privilege successfully the reaction policemen half top The viewing drama and attracted on early June. during an in domestic harvested topped of exclusive show as ways. multi-season given tells variety the with humorous while XXXX members we score first daily dramas in over first the of

In addition, in are to addition membership we exquisite experience. benefits devoted the video to strengthen viewing

Day, Member various benefits such quarter, Day, accessed as to across example, Super wide benefits with Brand launched marketing a variety over our Benefits second million XX the members campaigns times. member For In and deals were provide brands. of we

continue will high to we channels Douyin expand our content. of content, such leverage last and ahead, large on and but premium quality the to improve reach improve various operational member monetization channels increase continue as promotion awareness, least, capabilities loyalty, the value, continue experience premium and will our brand to Looking effectively we our initiatives launch user Meanwhile, to outside screens. not to platform, optimize and our partner sales content within

onto content insist to with differentiated that Moving view high on content. users We providing quality demands. premium caters

we new key industry-wide content As improving emphasizing and majority releases. adjust pipeline efficiency have premium that the our took quality to initiative content up that operating of content so became words, makes

we not according in content number During traffic industry. in releases highest video operating for in of market we our maintained highest market. the leadership to the across category position measures, related ranked On the key number Enlightent data, according were maintained quarter, new front, share Meanwhile, terms despite effective the one QuestMobile, the to views, second the metrics. our of the our user mobile MAU drama

positive content, ranked ROI animation, also via of the to continued the for annually in content animations, both number our for to ratios children’s the to content show all effects library thanks share including drama, key strong viewership our in of long-tail while engagement library for see long-term Meanwhile, industry. first channels ranked high-quality to improving improved, market also children performance pleased sequentially. one cost our Our as share high-quality The categories. I’m premium market commitment industry. user show, sufficient content and variety animation, and supply content-related content content

movie we domestic office content genres. across continued included main box the dramas Greatness, office was to Fight. original RMB premium the to The quarter, The XXX were and launch our key Sassy over Acclaimed one for My second Man of on box second Edge the in movie million, original the the contributors it Princess and Ordinary quarter. original During

revenue animation content, children’s to contribution original For X business. sequel membership to made our Princess Season solid Doremi the

one success of we saw content, returning these previous attractions our for a of IPs approach long-term to key drive taking strategies on from our established strong user titles. value. seasons, the on original For focuses multi-season Building

second X, popularity and number Season popular season, various original latest our The of their from shows Detectives’ original of seasons, songs of which, its a cetera. The on XXXX high good four including music and the the released Among Adventures variety XXXX, et the topped our China quarter, platforms. Rap from chart previous The During maintained of show Rap show China music

third the innovative to demands. multiple at and meet The feature one Detectives’ went audience audience vacation. X.X third-party viewing provides during returned also SWEET an Theater, brought and The that introduced second Adventures of up X.X young season generation five drama an experience Theater The viewing model On content data of under number theater ranked user differentiated continued started of with new on participation. interactive in Lord the to Laugh platforms. Losers, summer given Meanwhile, vertical titles, ON features. interactive immersive Douban its the satisfying June preference increased Its The score

of definitely have seen the in improvement years, the our content Over offerings. quality solid we premium

four been measure influential that broke XX,XXX industry tailored matured two Among XX,XXX A For titles users. the launched content, is score our the are Namely, that of popularity a example, Journey, over there audience and Lifelong content a only index indicates drama, by measure recognized the and index titles were score, year. index this relatively have iQIYI’s of more is such with blockbusters, any offerings, popularity and group. them to an popularity popularity highly clear

that SWEET catering generations. content The launched drama our broke highly recognized the drama other Devil quality Theater, original to original one and first Between by such the is our drama users. exceptional from of original is landmark This younger Fairy is our Love demonstrating recently score, ON

bring users. original more abilities high-quality our pipelines, even We now original category. a confident with the drama and look We especially to our future selection of are our titles for production forward to diverse content

of on for dramas new maintaining for A mainstream Genius, XXXX, et XXXX of premium This content pipeline Mist Your The will season, Twenty while For cetera. return for content the capturing generation young season X, includes: Life Heart On and focused the especially On summer and audiences. Theater quarter. audience our in of Sweet the second fourth Season Theater half is

while IPs innovate we continuing shows, established variety serialize new will genres. to For

Mr. the be For the and a to Show shows number X, Super our will of the Season Folk. original launched Sketch year, greater X year, including first half compared of of Season half Housework variety second

The as novel seasons, IP For launched of has continue the blockbuster our which We release drama popularity animation and their have summer hope revenue the animation. animation Love Apart pickup will of momentum popular such season. strategies. Devil, diversified the only will in to performance monetization the also titles level pre-pandemic summer high and the our version will we of that, brought drama. content, demand was new the the Not multi-season continue and clear from Between to the season, same from consumer and overall stronger will execute soon. adapted the during demand many children’s of we return we also Fairy during seen consumer

Moving pressure advertising. put Beijing macro overall market pandemic on cities particularly softness and business, resurgence the and challenges. in the to brand similar the players ad The on ads. top-tier in All the on including faced Shanghai

revenue quarter. possible to Technical original accounts. grow forward XX% managed by This our operations ad values. Technical users. innovation user innovation ad environment. such revenue engaged our ad challenging the these was XX% experiences after Performance mainly customized normal benefited to our annually variety business is despite it sales cities quickly to of to for course we solution our accurate from for and sequentially, among core of began during and bring ad in mid-June viewing wonderful identification key pushing makes shows process starting However, by resume increased groups our

interactive formats innovative episodes For episodes. between to creative team conventional of The creative product telling and XX% user increased content example, drama episodes Losers. team brand our the new average drove significantly time compared to story the cooperation and open for as by production Such of led spent engagement. for R&D interactive Lord The

our and a increase business and overseas overseas enrich new paid growth, subscribers. significant and Both products. The benefiting onto our recorded sound ecosystem. value, momentum, continued annual Moving from to revenue iQIYI in Lite business the large membership increase maintained long-term growth

list, and the During Series X. we the The Thailand a hit X and large KinnPorsche advertisers, on including search launched These appeared especially and top Season Hari quarter, in Malaysia. of viewers titles titles attracted hit Twitter’s and number

base app level June. low main position for million, app. and the capabilities paid from over and The the in both increased For annual key to in ensure monetization remained in and quarter, of quarter a the less as second the Lite great DAU future. the in was and ad potential on our serves saw model, overlap to the will second and With rapid Lite growth user annually to engagement second the base lower-tier stable X overlap our revenue half both iQIYI main iQIYI to in growth a greater distinctive iQIYI group, and rate year, X% user Lite very between of market focuses and sequentially. with we and than cities user behavior expand Lite differentiate markets. reach work the at expected user membership Average complement the to main consumption the monetization app is iQIYI DAU a revenues.

with will iQIYI’s enables and for in Douyin select recreation and rules demonstrates It July, and content. both to existing for content As working platforms cooperation win-win you in collectively to are license Douyin content we the that licensing we users, both platforms industry. of know, create which announced distribution setting

More opportunities, will penetrate unlock video the enrich and strength the longevity and recognition of online of opportunities content. monetization user that us the showcased IPs. well arrangement content portfolio, importantly, value long-form broaden of as increase base, premium new cooperation our video will as The our the value ecosystem, exceptional our help into larger the

the both focusing and Calm we operating our were we sustainable generate efficiency cost special non-GAAP while to out execution, industry-leading macro in content In future, upgraded result of Overall, roll starting from a significantly strategy, maintaining financial In product face strategy results sides will environment, encouraging. over We profit. quarters cooperation improved position. on under cohesion as and Growth This improvement. of team and the was of consecutive strong from second professionalism challenges the our as growth optimization the and results our in quarter our certainly two well aim QX. our

providing committed long-term creating satisfying and premium driving in are value, value our We our for users, to and demands, spiritual cultural content more growing stakeholders. content

Thanks everyone. four is the we Mr. have and like items I Jun. financial hello to that key To Gong would section, This delivered. highlight start

profit just third, strategy, second fourth the growth; growth operating is breakeven; raising; the based million current growth First as $XXX is and Mr. our flow it’s the is optimistic bond Gong mentioned. outlook cash on

like flow In same four quarter, mind, with achieved these billion move second operating RMB million RMB revenues and in and to operating X.X details. Now, we items time would I into XXX the cash profit, the breakeven. booked non-GAAP the at quarterly

X.X partially solid is Mr. As Within per mentioned, throughout The up membership downturn revenues services environment. mainly quarter. was the as result macro membership RMB by line, the services Gong we non-membership driven the weaker year-over-year, revenue or by fight against the challenging ARM, due revenues membership. macro this revenue billion, average performance X% revenue of was of to remarkable gravity offset

expenses. Now move to and cost the

reflecting business. ongoing margin latest XX% XX% the in gains consistently the Meanwhile, second the X% our was sequentially. kept the revenues XX% to of cost, cost down delayed of second and to in we top billion, saving total cost expanded reached past Content revenues, to is ROI XX% expenses quarters, profit year-over-year, third result XX% quarter, RMB X.X our operating spending XX% and the significant in X.X to annually of of namely, of billion, quarter cost then our net quarter. the XX% component the second from in and when RMB shows that quarter. gross in stabilized disciplined content decreased quarter a a The The representing several we

to the profit our As non-GAAP gross expenses control expanded and disciplined combined expansion. a contributed margin result,

the quarter, investors: second are profit XXX new to issuance. of billion, strategy, we same the restricted Calm summary, operating would the first quarter. was flow optimistic the operating the firm investments flow million non-GAAP and billion of we entered the both the trust; PAG, investor’s quarter-over-quarter. for about cash million, again, we profit and fourth X.X our thank equivalents, growth; the strategy. to the time leading time; first profit grew is cash an in Company business growth to Growth We Growth RMB aiming At to breakeven that with achieve managed at one value X% operating quarter, end cash achieving cash, will For second under future have flow Calm convertible agreement RMB second the like our previous growth on $XXX recap In operating quarterly confident the the presented and healthiness with QX. RMB for compared had X.X in the short-term the breakeven; bond Today Pacific Asia and we our create We in third revenue well, through performances into raise cash outlook to investment also cash is based results raising; and is to the is all continue stakeholders. and

detailed the please on website. to our financial our For release IR press refer information,

for Q&A. we Question-and-Answer Now, the open floor Session will

Thank comes Alicia Yap ahead. you. with Please go Today’s Instructions] [Operator first from question Citigroup.

[Foreign longer is Thank you. on My the in management can And term, second the view how management that of business. a what quarter? elaborate for share And thoughts revenue your the bit the and more membership membership also, how to in the little terms the are membership we question your the Language] performance? subscription future trending related are quarter seeing is third Can you membership trend and business strategies?

[Foreign Language]

Okay.

parts. me into Let question two answer the

of like I QX. membership and explain extent to would the QX First, business in

our overall, all, grow for First quarters. expectations. revenue performance our The for membership the to in continues ARM the met QX, of past

There subscriber that numbers, outcome. absolute contributed which that a relative However, there are our the is expectations. reasons to some few in are frustrations to

QX for the low year. the typically season is First,

movies online, there lower resurgence, released were the our seeing limited QX of there contributed of platform. triggered on also COVID of to can season. is some relatively the significant a traditionally resurgence third, in theatrical we offerings platform also Second, the movies China. membership that improvement which in of QX, on pandemic delays summer extent, because content a are we’re And to that of And entering the into peak number QX, because are some business, the a broadcast

Between online, August, which a the of Fairy titles the So, online Genius, released and The show of the Devil. very Heart from major [ph], we’ve starting lot of Love seen including blockbuster is

optimistic are the we overall, currently, for the performance So the as subscriber base QX. absolute as for well revenue business of QX

Language] [Foreign

In X membership Sure. abnormal the past X.X COVID or the because of experienced the China. years, business situation performance in

speaking, were some positive short-term For impacts. there

operational that also offerings development in as we For have period three situation that our shorter sub pretty some months. the situation the COVID seen business. by macro situation and Overall to content the approval probably on because negatively years. The negative COVID the seen negatively two trigger the example, impacted was has has -- we impacted COVID of from also process impacted base X content the side impact have of side, than that and of business membership will I well or a offering, healthy of increase think consumer the also from And business and motivations of the also content term more last the the the in but our environment. volatile abnormal X our were last with spending speaking, China to

the the period, past is than of the a gradually we’ve rather seen in that I sentiment would spending on reiterate, pandemic impact and the positive will especially as summarize summer, consumption currently, years the recent pickup -- three and you’ve the business. or side consumer since seen for But two, overall is especially our significant positive of situation improving on side. side membership because over the decrease negative I whole the speaking, negative So, more the

speaking overall, still term mid we optimistic So membership membership business, long business. to of very of our are our

[Foreign Language]

business we’re starting negative a seeing COVID, of second There QX, seeing pandemic the QX, of the in for on negative our pickup half and membership future a of the overall business. are especially the impact in the in because past touched points. are the until of I Earlier, we Okay. of gradual situation, two the years because decrease impact

to base anticipate the in in the First, the future ARM, grow we past grow the trend and will continued this quarters sub for continue in our as And we continue well. will to anticipate positive that future. secondly,

question ahead. Please comes go next our Chong And Jefferies. today Thomas from at

Language] be our is accounting, that the will growth? faster remarks you. the than about in [Foreign profit talk Thank here, Just prepared revenue why growth

[Foreign Language]

little Calm this how For Growth to strategy. we the strategy, let explain a arrived me

this last measures will and end past and strategy different out we year, plans out we quarters, built efficiency guide the the and we cost; the enable achieve this that kind rolled Towards the that us to strategy. minimum efficiency successfully optimize execute the increase the of can to in of result. or we achieve figured our what’s out a also that After two improvement do better out we And future. us will to figured pattern

higher of can better from or in For past that user of example, we we to we the towards with now the the know the broaden we we that investment after from higher ROI front. that profit, content lead results can would increasing that ROI, content think the results in lot the will we the invest the will even ROI, investments same can experiences, growth that have some gain generate because a know positively then margin high

the in profit investment going further. means know think process we to we future, the for impacted of areas, higher we see think, proportion and forward, investment investment which even that’s also, controlled we of also such gain investment returns under content we two first of the revenue. overall efficiency growth forward. any for But to actually back some reasonable speaking fluctuations than will even that these will the we that gain going the going reason. user will the that higher year, increase if grow in So, negatively forward, of will And faster some And why expedite we looking increasing half we our the the amount this due in

from Please Zhang And ahead. with our Xueqing comes next go today CICC. question

with we have notes of $XXX Today, PAG. placement convertible announced Language] million the profit [Foreign

share management details the plan could So for financing future? the this? you. what’s activities terms about And more in of Thank

the mentioned, announced PAG know, company I a in to investment PAG is investment AUM Pacific Asia issuance. $XXX for with And billion has Difficulty]. million afternoon you with actually, real As And with the firm into very investors digital leading enter historical convertible just they as agreement [Technical accumulated are and with media approximately, know-how very, cluster. I strong over think, $XX the seasoned with space this in

is the general So, background. this

illustrates recognition I on do have think this competitiveness. financing PAG’s companies improved fundamentals, improved and we

expansion with underestimated. margin up. is have the say all this as future market have is and that to Then important current said, two our signing potential, in another completion, been financial holders financing, media still including relax is think a with position and with note journey including of And still overhang iQIYI’s I most on And way problems. -- the cooperation, catalysts this I We the And the the value efforts and it’s during to value things. And partners, both that mode. solve solve enough not consensus, we clear the need between and million And being $XXX the it’s importantly, financing future, company, company’s one to as from the for had that, that think, great solve collaboration only would go healthiness. with the one our well. is stakeholders heavily million million $XXX to think employees, still growth an improved of the a and I pick most sit is liability the the I although And management, conviction are help has we step to this would including have parties sides of this has iQIYI’s a problems. joint recovery and probably $XXX process, find we I a a business back first stone, of all not are all step to do we say company’s

gain, can if issues very collaborations parties to are confident of are all we hard on reward And unlock value, lead course, the We that. help satisfying that we we going and technical solve to -- if returns can investors still these investors going say, whoever have from work company company’s can with all recover the all value the can would help the I forward.

is the all the that regarding future -- as thinking. private as of share So, our -- future will well this I some the placement

And Sachs. Please with our question Lincoln today Goldman go from next comes ahead. Kong

the [Foreign a So, cooperation Douyin, copyright since contents. on we have the agreements is our question Language] with about of signed video

So, how financials? should we collaboration our they commercial would future in other to efforts think And user about us how and help the potential distribution of formats? copyright terms acquisition, potential the

Language] [Foreign

Okay.

bit secured, a few we I share for explain or We details process situation but parties ecosystem as are me Let the the aspects and in for into much months the of the the on win-win little elaborate a to both collaboration. guys. wanted probably create process, wanted this a well through more as there with Douyin went I the very past video negotiation to were space. you won’t go too and

hurt the have term, And experience the for to iQIYI that a collaboration, high-quality to many which framework, to the is short-from But authorized recreation use of distribute arrangement have won’t First, that specific right is creation short-form within to a [ph] our the for using for some within Douyin iQIYI this videos. there’s the for videos. content very one that video. we long-form also The of tenet which for the brought this to content means aspect. of short-form that the the means collaboration, this our license traffic long-form can use this premium means which for audience platform video broader video also viewing utilize collaboration we reach we

products quarter starting as we’re this is had things because and you in collaborate getting also in of QX, will are positive cash daily financials results for Because out, towards this terms also I see And operations the in as collaboration. impact we The thirdly, operational and signed have we starting would aspect the example content positive getting we agreement platform. just from, QX. flow Another as It of as July, well end front, say, this this products, for out impact will profit worked the of year. will in for we other technology well from third collaboration. roll and revenue of the

more content related anticipate to products with from will you So, period. that and Douyin this cooperation starting

[Foreign Language]

Okay.

collaboration. some long-term of mid- views me the Let of share this to

First, I perspective. from industry share will the

Douyin all, market leading when for are for of short-form because the it’s both iQIYI First and players it’s and when long-form. the in

So, under importantly creating platforms. collaboration industry this both collaboration, rules we’re this for for setting win-win there and

more and the our iQIYI video to both iQIYI business industry, the impacts users. of and as So are say, positive production push beneficial as be situation creative short-form and more more a say specific. content. premium share talent for some sustainable decrease, which would dedicated more for And Above basically, for to I positive I second, And talent time views for will content also positive in of in beneficial the creator’s the it industries the extent, our is license and have the to well. will very very some iQIYI And as be platforms well very creating importantly, will for solutions video and this development ecosystem. infringement and now also of event this creative of creators the for also, to to or for enforcement as bring also well were will, we the long-form concentrated perspective, users videos. iQIYI this the bring And legal which term, and holders for the demonstrates very, some this their high-quality will as say, they I better very would on I unleash the copyright long the

as the future. say, of our demonstrates iQIYI our by content premium well of high-quality collaboration Also, will I as recognized all, in of premium are users. this demonstrated potential the monetization very it the industry First content the

Second, number through to premium will content. this iQIYI’s That End drop Thank reach collaboration, creating you. impact of group as help our Q&A it in high as bigger the users of content also well will users a to platform. members of of broader increasing

and concludes Ms. turn Ladies over to question-and-answer the back our to this like session. I’d conference gentlemen,

remarks. You for closing

Bye, you. next questions. further you bye. contact Thanks for if Thank call. everyone the joining have Please you us See any quarter.

Thank call. thank concludes conference presentation. you. attending today’s all you We today’s This for

have your You wonderful and disconnect may a day. now lines,