Shulou(Shulou.com)11/24 Report--

According to news on the evening of August 30, Beijing time, iqiyi (Nasdaq:IQ) today released its financial results for the second quarter of 2022, which ended on June 30. Iqiyi's total revenue in the second quarter was 6.66 billion yuan ($993.8 million), down 13% from a year earlier, according to the financial report. Iqiyi posted a net loss of 214 million yuan ($31.9 million), compared with a net loss of 1.4 billion yuan a year earlier. Excluding Non-GAAP, iqiyi's net profit was 78.3 million yuan ($11.7 million), compared with a net loss of 1.1 billion yuan a year earlier.

After the announcement, iqiyi founder and CEO Gong Yu, CFO Wang Jun, CCO Wang Xiaohui, CTO Liu Wenfeng, CMO Wang Xiangjun, Senior Vice President Duan Youqiao, Film and overseas Business Group President Yang Xianghua and other company management held a conference call to interpret the main points of the results and answer analysts' questions.

The following is the main content of the question and answer session of the analyst in this conference call:

Citibank analyst Alicia Yap: my question is about iqiyi's membership business. Could you ask the management to sort out the evolution of iqiyi's membership trend for us in the second quarter? What is the trend of membership subscription in the third quarter? Could you ask the management to share with us how to view the long-term development of the member business and the company's strategic direction for the future of the member business?

Gong Yu: I will answer in two parts. Let me first answer the situation of membership business in the second and third quarters. The revenue growth of members in the second quarter is in line with our expectations, and the ARM value has been increasing for several consecutive quarters, but the average number of members in a single quarter is lower than we expected. There are several reasons behind this: first, the second quarter itself is an off-season, especially in this year; the epidemic is very serious in the second and second quarters, which leads to very few cinema movies online, resulting in a very small number of our online films; third, although it is an isolated case, there are still reasons for auditing, and some of our content is delayed.

The situation improved greatly in the third quarter. First, summer vacation is a very good season; second, especially since the beginning of August, many excellent dramas have been put online, including the basic Law of Genius, the Legend of Cang Lan, and so on. Therefore, we are optimistic about the growth of both the amount and the number of members in the third quarter.

As for the future growth of member business, the period from the beginning of the epidemic in the first quarter of 2020 to about two months now belongs to the stage of abnormal business rules. There is a large-scale epidemic every year, and the epidemic is relatively large at the beginning of 2020, the same at the beginning of this year, and slightly better in 2021. In the short term, the epidemic has a positive effect on the member business, but this positive means that the increase in the number of members can only last for two or three months, and then the negative effect is even greater. Therefore, in the past two and a half years, our membership business is in a state of abnormal, unstable, unsustainable and healthy development.

There are many reasons behind this, including unstable and insufficient supply of content; auditing, which has affected the efficiency of auditing due to the epidemic; and the decline of consumers' willingness to spend, due to the impact of macro-economy. Consumers' economic situation has been negatively affected, the willingness to spend will naturally decline, and so on. Over the past two and a half years, these negative factors are even greater. However, judging from the current situation, the negative impact of Omicron virus is getting smaller and smaller, the economy has obviously begun to recover, and consumers' willingness to spend has also been significantly enhanced and improved from the summer vacation. Therefore, in the medium to long term, we are very optimistic about the membership business.

We expect that from the second half of the third quarter to the future, these negative factors just mentioned will gradually fade, or even pick up, and gradually begin to develop in a better direction. This will lead to two changes: the first change is that we think the number of members will increase, at least for us; the second change is that our ARM value has been growing for the last six quarters, and this trend may be maintained, the specific number may change, but the trend will remain.

Jeffery analyst Thomas Chong: management just mentioned the concept of stable growth in the briefing. Why are profits growing faster than income?

Gong Yu: at the end of last year, we formulated this year's strategy, that is, to increase revenue and reduce expenditure, control costs and increase revenue as much as possible. In order to achieve this goal, we have taken a lot of measures, and the intensity of the measures is very strong. After two quarters of testing, we know where the bottom line is, and we also find some regular rules. Therefore, under such circumstances, we have to increase some investment at some points where we predict that the efficiency will be higher. We believe that the return on this investment is very high, which will lead to higher profit growth than income growth. Of course, this is in the case of increased investment.

Let me give you an example. For example, we had a very high proportion of reductions in both content and user growth in the first half of the year, but we also found that if we added a little more investment, the return would be very high. In other words, we found out where the bottom line is in the first half of the year. If a moderate increase (input), the income will basically significantly increase, and the efficiency is very high. This is completely different from the previous strategy of relying on high investment to boost income without paying much attention to profits.

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