iQIYI Q2 Earnings Call Highlights

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iQIYI (NASDAQ:IQ) reported second-quarter revenue of RMB 6.3 billion, up 1% sequentially, as growth in content distribution offset seasonally lower membership revenue. The company said its non-GAAP operating loss narrowed 8% from the prior quarter to RMB 130.3 million, bringing it closer to breakeven.

Founder, Director and Chief Executive Officer Yu Gong said the company is pursuing a strategic transformation centered on decentralizing its content ecosystem and expanding the use of artificial intelligence across production and distribution. He said the two initiatives are intended to increase the number of creators, volume of content and user engagement while improving content costs, revenue quality, profitability and cash flow over time.

Financial Results and Cash Flow

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Membership services revenue totaled RMB 4.0 billion, down 4% sequentially, which Chief Financial Officer Ying Tian attributed primarily to seasonality. Online advertising revenue was RMB 1.2 billion, unchanged from the first quarter.

Content distribution revenue rose 90% sequentially to RMB 681.5 million, driven by increased distribution revenue related to drama series. Other revenue fell 17% sequentially to RMB 344.9 million.

• Content costs were RMB 1.8 billion, up 2% sequentially.
• Total operating expenses were RMB 1.1 billion, down 6% sequentially, reflecting what Tian described as disciplined marketing spending.
• Net cash provided by operating activities increased to RMB 339.6 million from RMB 186.4 million in the first quarter.
• Cash, cash equivalents, restricted cash and short-term investments totaled RMB 4.1 billion at quarter-end.

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iQIYI also said it had a loan principal of $636.6 million receivable from PAG as of June 30, recorded in prepayments and other assets. Under its share repurchase program announced in March, the company had repurchased about 21.6 million American depositary shares for an aggregate cost of $24.1 million through June 30. The program authorizes up to $100 million in repurchases through September 2027.

AI and Creator-Economy Push

Gong said AI can lower barriers to content creation and increase content supply beyond what traditional centralized media models can efficiently accommodate. The company refreshed its iQIYI Creator Center in April, and said the number of creators and uploads have been trending higher.

According to Gong, daily average uploads across various content categories rose between 30% and 500% in the second quarter compared with the first quarter. Daily views for micro dramas and micro animations in June rose by double digits compared with March.

The company is using AI in live-action production as well as AI-generated content. Gong said AI use in the rough-cut workflow for its original series Her Prime Season 2 produced a tenfold improvement in rough-cut efficiency compared with traditional methods. For formats more suited to AI-generated production, he said AI can reduce production costs and timelines by 70% to 90% versus traditional processes.

iQIYI launched 16 AI-generated short-form dramas under revenue-sharing arrangements year to date. It also premiered Mystic Tale: Qi Tan in July, which Gong described as the industry’s first AI-generated internet feature film to launch with internet-drama distribution methods.

Chief Content Officer Xiaohui Wang said the company will prioritize long-form video while using AI more rapidly in micro dramas, micro animations, animation and children’s programming. For long-form dramas and theatrical films, Wang said iQIYI will continue to rely primarily on live-action production, with AI serving as a tool to improve efficiency and reduce costs without compromising quality.

Content Performance and Membership Initiatives

Gong said iQIYI maintained the top market share in long-form dramas, films and children’s content, according to Enlightent Data. In short-form dramas, the company’s market share doubled from 25% in March to 50% in June, reaching the top position for the first time, he said.

The company cited the original title The Fireman: 10th Anniversary as a contributor to the short-form performance, saying the title reached a peak daily market share above 60%. Gong said short-form titles may offer lower per-minute costs and shorter production-to-approval timelines than long-form dramas.

In membership operations, iQIYI said targeted discounts for students and teachers helped lift quarter-end subscribers in that cohort by more than 60% year over year. Its express packages were offered across 16 dramas during the quarter, with total participants rising nearly 80% year over year.

Brand advertising revenue from drama-targeted ads grew by double digits year over year, according to Gong. The company also said performance advertising returned to year-over-year growth, aided by revenue gains from small and midsize advertisers and advertisers in AI applications, instant retail and e-commerce.

International Business Growth

Senior Vice President of International and Online Game Business Xianghua Yang said overseas membership revenue grew 40% year over year in the second quarter and that the segment remained profitable on a managerial accounting basis.

Membership revenue in Brazil and Mexico increased more than 215% and 150%, respectively, while revenue in Arabic-speaking markets rose 85%, Yang said. Overseas micro-drama membership revenue grew more than 300% year over year and was the company’s second-largest membership-revenue contributor after long-form dramas.

Yang said iQIYI views Thailand as a mature market and a testing ground for operating practices that can be adapted elsewhere. The company plans to use Chinese content, local programming, marketing, carrier and payment partnerships, and AI-supported translation and distribution to support expansion, while maintaining a focus on unit economics and operating contribution rather than simply entering more countries.

About iQIYI (NASDAQ:IQ)

iQIYI, Inc is a leading online entertainment service provider headquartered in Beijing, China, offering a comprehensive portfolio of streaming video content across multiple genres. The company operates a subscription-based video-on-demand (SVOD) platform, complemented by advertising-supported content (AVOD) and pay-per-view offerings. Its digital library encompasses original series, feature films, variety shows, animation and documentaries, catering to diverse demographic segments and viewer preferences.

Originally launched by Baidu in 2010 as an online video site, iQIYI was formally rebranded in early 2012 and has since expanded its footprint beyond China's domestic market.

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