Q3 2024 iQIYI Inc Earnings Call
Thank you for standing by and welcome to the it third quarter, 2024 earnings conference call.
All participants are in a listen-only mode.
There will be a presentation followed by a question and answer session.
If you wish to ask a question, you will need to press the star key followed by the number 1 on your telephone keypad,
Our now, like to hand the conference over to miss Chang, Yu IR, director of the company. Please go ahead.
Thank you operator. Hello everyone. And thank you for joining it. Third quarter 2024 earnings conference. Call the company's results were released earlier today and are available on the companies. Investor relations website at ir.com.
On the call today our mrr legal our founder director and CEO Mr. Jun Wang our CFO, Mr. Zelle Wang dco Chief content officer, Mr. Senior vice president of our membership business. This is
brand advertising business.
Mr. Go will give a brief overview of the company's business operations and the highlights followed by June. We will go through the financials. After the prepare remarks, the management team will participate in the Q&A session.
Before we proceed, please note that the discussion today will contain 4 looking statements. Made under the Safe Harbor. Provisions of the US private Securities, litigation Reform, Act of 1995, what we're looking for, statements are subject to risks and uncertainties that may cause actual results to divert material from our current expectations.
Potential risk and uncertainties include but are not limited to those outlined in our public filings with the FCC. It does not undertake any obligation to update and forward-looking statements except as a required under applicable law.
I will now pass on to Mr. Gold, please.
Go ahead.
Hello everyone. Thank you for joining us today.
Through our our 14 year company history. Our ability to
Create events of self. And
Innovative.
Have been or call around it against the competitor. And this strategy has remained and change for navigating all kinds of challenges.
And this moment we have a identified 2 key trends. First consumer become more important because of micro hybrid. Secondary
consumers are now are facing more entertainment options, including the free mini and the shop drivers.
Which is going well internet.
they hold strong beliefs that premium long form videos, remain quiet of the most common and
We playful forms of entertainment. They are unique ability to improve. Uh, why audience and cry provide emotional value is unmatched by any other sport of entertainment.
As well fitting involving industry and the market dynamics.
To this new opportunity and to ensure our long-term healthy and sustainable growth.
That's why we have been making a series of strategic upgrades key initiatives includes.
First, we have optimized, the production of Dramas, by refining the storage howling pasting, a glass structure and a character development. So as to better match, the organism will prefer properly.
This will Corner improve the popularity and bring better returns.
Second.
We have been upgrading and will continue to upgrade our APS to include meaning and soft armor as part of our content offerings.
The main Edge year app will make 10 is focused on long form, video content and the subscription based model.
Uh, completement by 3 minute and a short drummers and advertising model.
In contrast the upgraded it light up well focused on free meaning and the short dramas and advertising models. The complemented by long form videos and the subscription model.
We will increase investments in the acquisition and distribution of meaning and short. Dramas first.
We have optimized our membership products and the services system. By combining an authorized, the password sharing and introducing an attractively priced family account option. The goal as we enhance member conversions and expand the scale of membership.
And Beyond this initiative, we would apply Ai and more widely across. All ecosystems, expand our presence in our system market and explore possibility in IPC. The reality tips and offline experience
We believe this efforts will enhance our revenue and profitability over the long term.
No, let's move on to the details of our call business documents.
Starting with many and short Summers.
We are adapting our company strategy and the business model to align with involving market trends and the consumer preferences by introducing meaning and the short drivers into our offering.
Ing from long from video info Maps.
Storytelling style and the audience reach, meaning and the short Summers serve as a great.
Compliment for our existing lineup of traditional long format.
A dramas movies and a variety shows.
Mini Drivers feature episodes lasting 1 to 5 minutes in work of formats and a short genres and spend 5 to 20 minutes in horizontal format.
This transfer format offers a quicker storytelling pace.
catered well,
To users seeking quick, entertainment, brings and have gained considerable popularity among audiences.
From a business model perspective in the future.
We need drama will be available to all members at no actual cost.
Non members will enjoy the free to watch mini dramas or choose to pay per wheel to access. Those inclusive to members.
Soft drummers will mirror.
The approach taken with a long form content.
They are free for members. Well number uh well. Non members will have access to a great free to watch second window. They still offering haters
To deliver viewable demands, your demand.
Well, supporting the growth of all subscriber base and expanding of monetization opportunities.
moving on to long form videos, which are
fundamental to our content ecosystem.
Starting with the core drama category, we regain the number 1 position in viewership market share during the quarter according to enlightened data.
This was driven by the launch of multiple titles that gather higher claim from users.
Notably the second season of strict Tales of pound.
Become the 14th drama to break the IG popularity exact score of 10,000.
Not only the serious third season is already in production. This IP has been expanding as influence from online to offline, domains.
Showcasing a success in IP development.
Also the new release for The Young Ones.
Received the highest it popularity in that score among drummers with less than 20 episodes.
other titles, such as
Internet internet. See.
Be the 1 angle.
And wind direction where all released 2 W. Dr. P.
Well, we are proud of our performance in crime and reality drama generous we recognize certain errors. Well, we could improve. For example, The Limited supply of key female oriented custom drummers in the so-called, her impacted, his title, given members.
To this end, we aim to enhance the status Supply in this General.
Well, also better align content generals with Optimum optimal broadcasting window going forward.
For where he shows.
Uh, Innovative new title, the king of of the standard of Comedy.
We enforce our strong first person in the comedian General. According to enlightened data at dominated the viewership charts for 10 consecutive weeks and the largely outperformed other shows in the same general and also achieved the second highest peak popularity ever recorded for it inclusive. Variety shows.
What's more in impressive? Is that the show has not only propelled some standard of Comedy?
The 2, widespread rain but also played the arcade role in boosting the industry and the capturing the attention of audiences.
For movies, we have maintained our leading position in viewership for 11 consecutive Corners are coming to enlightened data. The performance was under Strong by the
So I could call you later like that. And the normal that first and second respectively, of popularity in that tracking,
For animations of production capabilities, for Chinese animations continues to improve as evident by an increasing shell of revenue generated. From all original titles, along with the ongoing release of the highly popular. How dare you convert people, we also launched the legend of Sky law, shall we?
And a moment but forever. Receiving positive feedback.
The effect from the quality of our premium content, we have earned broad the combination from reputable uh Chinese industry and awards.
And the 34th flying up virus Awards. Between young, we talked to the lift among online video platforms with 11 owners.
We also.
uh, secure 7 owners at the 32nd China TV, Golden Eagle Awards,
To our content.
Uh, Ginger.
Turning to our content pipeline. We remained committed to providing our users with top-notch long for video. This was highlighted during the ITI Drive conference, our Flagship marketing event will be disclosed. I inviting lineup of our 300 titles that are set to Premiere in the year 2024 and 2025
To our customers.
Phones or phones.
Someone really was released.
And the will be followed by the much anticipated. Uh, female oriented drama Love Song in Winter. Don't you moon in bruh, by you?
In reality and the strength errors audiences can look forward to.
We are criminal, please.
Under the Skin season 2 year, 3 2. There are the followers season 2 also which you are that wind go by for? Yeah.
The young drummers or movie offering includes of the original already released. His
Upstream.
And the tiger wolf rabbit, you ought to look with upcoming upcoming titles, such as the volunteer, the Battle of life and death additional new online, a new online films. And it original films are on the
oh, Horizon in terms of
Warranty shows we are introducing Rush. IP like my zoom.
What a good time and the blooming Journey for animations. The queue for my features major titles like the inclusive, a Dragon Ball Z.
and,
The original material at IP.
With driver in town, I understand.
Membership services, membership revenues in the. So culture was R&B or on 4 billion down year over year. There are 3 areas that include the membership Revenue performance. First fi app previously mentioned, although we launched a good quality titles in the corner, there are room for improvement in the supply of Premium female.
oriented and Asian costume dramas, which are especially a p appealing to members driven by his titles second
Amid, the current micro having users strong to his titles, have grown more cautious in fighting and are broader. Selection of entertainment options, is also seeking to capture their budget and attention
The high best effect from last year continued to play a part in our current figures.
Innovative value added Services continued to gain contraction among users notably. We launched the Express package for 13 drummers in the quarter.
Uh, leading to more than 40% sequentially growth in cash purchase, which in, uh, his Target on high. Additionally. We further enhance member benefits to encourage upgrade, upgrades to high tier plans and boost the member engagement.
This includes more than 20 offline events such as fun meetings, earlier screening.
Early screening events and the family fun days.
As always, our primary goal for membership services is to maximize Revenue performance for fulfilled. Let's go and to proactively adapt to the current consumer uh, face masks.
We are making modification to our membership offering key initiatives. Include
first, we are competing.
And authorized the membership account password sharing to enhance our common security. Meanwhile,
on November 12th.
We introduced the family account option as a better solution for our account sharing.
so,
this program Montreal out, renew
Renewing, golden VIP members have the option to add a separate family account for, just the R&B 8 per month.
each account, both the primary and the family and are well maintained separate user profiles and ensure I
And, and interact and the personal personal life. So we will experience
Definitely the other supported basic membership plan which was previously inclusive to it. Light has now been expanded to majority of products.
This initial performance is inclined with all the expectation.
Last but not least continent, Service, as 1 of the key drivers of our membership business, integrating many and strong drivers with our top quality long for video handles introduced, uh, new unique means that the caters to deliver real drivers.
Moving on to the advertising business, advertising Revenue. During the short Corner was R&B 1.3 billion down year. Over year, performance has remained the high high highlight during the quarter. Again, the static growth annually driven by the solid performance in
e-commerce internet.
And the meaning of sectors. The growth was also filled by our advancement in AI applications with the CPM for AI part as
improving by over 20% compared to traditional as
for brand as Revenue declined, annual land due to
A weak Advertiser, assessments and a made the micro helping, especially when we proactively reduce the investments in warranty shows.
in response to the micro Highway Wings, to a wide Financial setbacks
Which matter to a major decrease in brand and Revenue.
That was left.
Content related to us remained popular. Among brand advertisers titles such as the king of stand up comedy. The Moon is shining and the strange tale of Tom Dynasty and season 2 attracted the largest show of the Earth by this on all platform.
Going forward. We will focus on expressing or Advertiser base, especially among local Brands and the capturing of Greater shell or Bes from Top tier clients,
Moving on to technology and products.
We are making solid progress in driving, technology Innovations, to improve user experience and operational, operational efficiency.
For example, we've made upgrades to our products across all devices. We reach
include enhanced interactive bullet.
And bullish chart capabilities improve the audio quality better. We we do showing on the download options and refine recommendation features.
we have also made face further program in,
Advancing.
The industrialization of the entertainment business, as our world through production, technology has not reached the mass production stage. It is 1 of the first
streaming platform in China, with the ability, with the ability to handle the antenna, watch for production process for drivers.
Include including production, cost evaluation, technical design, and super this capability allows us to manage multiple projects similar. Similarly, 10, 10 years ago,
In addition, the drama Shadow love using China is the first in China to apply the latest version.
Of 2 Water Production. We have also upgraded the, it Water Production Studio.
With technical indicators meeting the highest standards both in China and the international land.
This package upgrades is expected expected.
uh, to
effectively enhance our mass production capability and moving forward.
Our reason, our reason advancement showcase the browser utilization of AI to improve business efficiency. AI
A place a central role in.
Advancing of operations, especially in content translation and topping for overseas business.
Our AI driven approach has enabled an efficient efficient and highly accurate.
Uh, model lingo.
the translation, at the multi-tone doubling period,
Uh drum drummer to play reducing the time additive to release Chinese content overseas and cutting down on translation costs. Moreover.
We have developed an AI system uh capable of rapidly generating.
Uh plant tax for our Content Library this Innovative tool have shortened uh what used to be a month? Long manual tasks into a matter of days.
In fact, we have produced
Plus tax for over 12,000. Movies achieving an impressive accuracy rate of over 92%
The Cutting Pro process has seen similar improvements with the AI related relief plan.
Analyzing and marching actors to the right roles which larger than b builds up.
Producers decision making work long.
Finally.
For business performance in region outside of mainland China.
We recorded solid performance in all overseas business in the so corner, with both total revenue and the membership Revenue, uh, and the membership services, revenue and annual and the sequential growth not plan membership plan. You know, from Hong Kong UK.
Resale and Australia or over 40% annually.
The average daily number of subscribing members overseas.
Also, increase them annually. And the sequence of land with Brazil, Mexico, the Hong Kong and Thailand see annually growth. Exceeding. 45%.
The influence of Sea grammars continued to strengthen overseas in the so Corner, total views of last with batting titanium, how the bill shape ranking across multiple markets, including the US, Australia, and Japan and South Korea. Additionally, we have successfully expanded, the informed, uh, expanded, the
Influence of original production, a Strange Tales of content and their 7 to Beyond mainland China. The the made International they built with a premium in Singapore as the as of July
the market, the first ever overseas premium screening for premium drummers
To a local content. We launched our number of dramas.
That we received a positive feedback among this, the lady and her lovers.
Recorded.
The highest daily revenue. Among all Thailand, all Thai dramas released on online for in 20124, the show. Also ranked first on Google in Thailand with their of performed. Other shows in the same time, same time, slot,
As we had into the first quarter, we will continue to expand our local partnership and before additional monetization opportunities. This includes, uh, the dep, depending
The on package called Vision with Telecom providers in Thailand. But if they are example, and the Hong Kong, in addition, we aim to apply the inform of our content and the English membership and benefits. Soon, diversify offline events on November 1st. We host our first I draw conference outside of mainland, China, as we proceed soon. The remaining months of Q4 where are the actual launcher areas?
Uh, appreciation events and the promotion for members.
Additionally, uh, we are excited about the forthcoming International rollout of more high quality content. Notably our talent show,
A Starlight wise.
Was introduced on October 26th and I have already received a positive reception from our audience.
In summary looking ahead. We remain committed to driving Innovation and advancements across our business integrating
Catering to the dynamic. Dynamic entertainment news.
Our targeted initiatives such as launching mini and a short drivers while bringing in great management is and for the expensing of commercial capabilities.
This efforts are supported by our deep knowledge of both content and the users, coupled with our industry resources.
In parallel.
We will.
Will deepen or adoption of AI technology advanced all. Over the
Uh, expansion and fully elaborations of the potential of our IP.
This strategic efforts are ended at driving our company towards greater the tender ability and success.
Now, let me pass it to on, to June to go soon of financial performance.
Thank you, Mr. Go and
Hello everyone.
What are the total revenue for R&B 7.2 billion down 10% annually.
The membership services Revenue reached R&B 4.4 billion down 13%, annually, for 3 reasons as previously, discussed by Mr. Gong.
For online advertising Revenue decreased by 20% year-over-year to R me 1.3 billion.
This was primarily due to the decrease, in brand, had a business partially offset by the growth in performance at the business.
Government distribution, Revenue reached R&B, 80014 million, and grew 52% annually.
And other revenues decreased by 8% annually to R&V, 729 million.
Moving on to costs and expenses.
The content cost was R&B. 4 billion down 5% annually, primarily due to light, lighter moving offerings in the quarter.
The total opening expenses were R&B 1.4 billion down 5% annually primarily driven by the more disciplined management of the marketing spendings.
Turning to profits and the cash flows.
The non-GAAP operating income was R&B 369 million and its corresponding margin was 5%.
The operating cash flow totaled. R&B 243 million positive for 10 consecutive quarters.
At the end of third quarter, we had a cash cash equivalent short-term Investments, and a long-term restricted cash included in the prepayments and other assets, a total of RV 4.7 billion.
For the detailed financial data, please refer to our press release on our website.
Now, I will open the floor for Q&A.
Thank you. If you wish to ask a question, please press star 1 on your telephone and wait for your name to be announced.
If you wish to cancel your request, please press star 2.
If you're on a speakerphone, please pick up the handset to ask your question.
Please ask questions in Chinese first and then translate your questions into English.
Please also, limit yourself to 1 question at a time. If you wish to ask further questions, please rejoin the queue
Your first question comes from Sue King, Zhang with cicc, please go ahead.
For taking my question, my question is about mini and share dramas. Uh as mentioned in the prepared remarks, uh the company has enhanced integration of many and the short dramas uh, commandment elaborate on it. And what's our strategy for me and drama? Thank you.
Uh, the CEO is answering this question.
uh, starting from the end of September this year, we added, um, mini dramas, and a short, dramas into our
Counting ecosystem and these 2 type of content are very much differentiated from a traditional uh uh long form video content. So they they are very good complement to our content operating
Sure.
Uh, especially for this year, the 3 uh, mini dramas models has been rising significantly and then, um, the user scale is at a pretty sizable. Uh, uh,
Scale, and I have been growing. So now it's a good time to enter.
We also.
so for um Minis on us, we um classify them as
They are.
1 to 5 minutes long in order for vertical format. And then for short dramas, there are quite a few minutes long in horizontal format. And for now we're focusing on the medium Drama Center.
So I will ask you that be on the end there.
In the past 2 years, we're participating um in a mini drama survival uh participating in the performance.
A chef. I have a stronger. More sure woman.
And uh, we have been actually innovated, um, in in this many drama sector and that innovating um, different uh, models and formats, uh, for users. It used to be, um, participating or watching the content by free, free or pay-per-view. And we now introduced the subscription model to this. Um,
business model and for
Um, current subscribers. Um, they can watch that majority of the mini dramas for free and they're pretty soon. In the future, they will watch, uh, everything, uh, for Midsummer Sports week.
For.
for the previous model, there are 3, um, advertising models and then or they can do paper view and we actually introduced the uh, a subscription model to the
Uh business model and we believe this will be positive and instruct uh constructed for the membership uh retention and also to get new users.
In terms of content strategy, uh we will develop a mini dramas um through various methods, including the licensed copyright of food right by us and profit, uh, sharing.
Going forward, focus on the premium head content of the mini dramas and then eventually, we will develop our unique style of that. Um,
Generated by it, belongs to it.
Yes, you are.
And we hope in the uh, future that for it is unique. As in terms of the continent of production quality and also the value provided to users, it will be a further improvement from the current level.
Yeah, thank you.
Your next question comes from Liang with Bank of America. Please go ahead.
For taking my question 1 to follow up on the shops drama set. Um, can you share with us, uh, the Competitive Edge, um, in investing for drama and any impact to our content cost in the future. Thank you.
um,
For.
Um, the CEO Mr. Uh, Kong is answering this question, so in terms of our advantage in in mini dramas, first of all, uh, we have advantage in products and technology for many traumas, currently maturity, uh,
a material amount of the the traffic is happening on the mobile side. So on the mobile side, we have 2 major applications, the It app and also it uh, light. So for these 2 apps, we have very mature, uh, uh, technology and uh, infrastructure and also a good user base and actually, uh, a good size. And actually a good portion of the users are subscribers. So basically, based on that, when we add a new content, uh, donors to this, and then combined with um, a good uh, upgrade to the applications. Um, it will be a good adaption to the current strategy, you know? I see any pair in my video,
Uh, for the the the first upgraded version of the ID app actually has been released already. We're doing the AP test right now, so most of the users when you download the uh, or upgraded the the application you will see.
The change.
For.
It up. It will continue to focus on video content from the business model perspective. It will be the majority focused on the subscription model and for it like um application it will focus on many dramas um and short dramas.
mainly driven by the
advertising models.
The vast majority of the content providers for many dramas, um, are its existing furniture. So cooperation in these new categories, has further extended and um, are deepened um, our partnership scope um, allowing
Um, to roughly scale up in these areas and then add a little relatively low cost.
so basically the operational
Rules. Or
in terms of managing the
Content, the long form, video content versus meaning, uh, Theory, all right, relatively similar, or don't have a major changes, so it will be pretty fast for our teams to to pick up and then a master in this.
Video.
In terms of the funding for the content, uh, for many dramas. So from from 2 apps. First of all, we'll lower, uh, the investment in terms of the low Roi long for medical content and then, secondly, then we will, um, you know, uh, scientifically and also rational increase the use of budget.
Series.
Yeah, and that's it. Thank you.
Your next question comes from Maggie. Ye with CLA say, please go ahead.
Yeah.
And good evening. Thank you for this opportunity to ask questions. My question.
Membership.
October, we announced the launch of family account Option, 1 rate is management, can share more insights into the Strategic consideration around this initiative, especially given the current M micro environment and consumer Trend, whatever. Expected on this strategy over near-term and longer term Health, initial feedback we received from consumers and users so far since the introduction, thank you.
Thank you Maggie and we will invite Mr. Stone. Who's in charge of this, uh, this segment to answer this question.
It is um family account is a high cost effective shared membership, service plan. We introduced to enhance the user experience for family members.
A better service, uh, users, independent, and diverse building, needs and user scenarios.
The family account and the primary accounts are actually Standalone membership accounts uh with individual passwords and also playback history. So this not only effectively improves the user experience but also
And as you know, that the video consumption needs of the elderly and the young demographics are steadily increasing.
And the family accounting is actually designed to effectively address their challenges in account management and accessing account content.
The membership account is an Innovative account in the membership product model, which have positive impact on improving membership conversion and Revenue.
So,
Going forward in the future.
We'll continue to combat password sharing, um offer users, more cost effective choices and aim for the long-term healthy development.
Of the membership system.
The family, uh, account was actually officially launched on November November 12th and we will observe the um, performance for some time before sharing the user feedback and data outcomes with everyone.
Your next question comes from Zhao with guangfa, please go ahead.
I will translate myself as a drum has mentioned your long form video at fundamentals to its content ecosystem. My question is about your strategy for production of job. Dramas, could you share with us about the lens?
Seeing an Innovative direction of your future drama series. Thank
You, thank you and we'll invite um Mr. Shaw please uh our chief content officer
we believe our
Uh, cyclical fluctuations in the industry. Uh, we believe that the recovery of the market confidence and user demand, um, long for video long form. Videos will
Still be 1 of the strongest demands.
Among users in the mid to long term.
Um, we believe you will remain at the core of it is content ecosystem as well. So going forward, we will enhance the sustainability of a diverse high quality content Supply through powerful reformed measures. Uh continue to achieve, a win-win situation for both content quality and commercial that uh Revenue
To show you.
Based on the insights into societal sentiments and also the changes.
User viewing preferences would believe uh we will comprehensively upgrade the production and operational mechanisms for dramas films animations and a variety shows. We will improve the production and content launch efficiency, uh, Focus resources on creating high quality works and strengthen the commercial aspects of the content.
For Content planning. We will structurally optimize the process by improving the coordination of the number of new dramas episode and genres, and will reasonably reduce the number of Ki new drama releases each year, we will strictly curate projects selections to prioritize excellence and concentrate resource. Allocations on premium content with high high commercial value. So from inception, all projects will.
Body Commercial Appeal, math Market, resonance, and contemporary relevance.
For Content evaluation we will establish stricter um assessment standards that focus more on Revenue capability and Innovation ability within the framework of the content related cost ratio.
Um, for Content creation, we will optimize Scripts.
And assuming technique to align with users involving viewing purposes.
And simultaneously, we will aim to deepen, our understanding of social trends and create works that resonate more profoundly with contemporary societal emotions and taste.
For Content production will strengthen project management and quality control, both flea, monitor project, progress and work with Partners to reduce costs and improve production, efficiency.
and from a team building perspective, we are committed to
our in-house Studio mechanisms.
Our Studios which are structured uh around the producers focused on consistently attracting high-quality Talent from the market we aim to cultivate healthy. Internal consultations by establishing mechanisms that reward Innovation and promote distinct concerns.
The strategy Insurance ongoing Evolution through a process of natural selection where only the excellent stripes and that concludes, um, the the answer to this question.
There are no further questions at this time, I'll now hand back to management for closing remarks.
Thank you, everyone for participating in the call today. If you have further questions, do not hesitate to contact us. Thank you again.
Bye, bye.
Bye. Thank you.
That does conclude our conference for today. Thank you for participating. You may now disconnect