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

According to the news on the evening of November 22, Beijing time, iqiyi (Nasdaq:IQ) today released its results for the third quarter of 2022, which ended September 30. Iqiyi's total revenue in the third quarter was 7.5 billion yuan ($1.1 billion), down 2% from a year earlier, according to the financial report. Iqiyi posted a net loss of 395.6 million yuan ($55.6 million), compared with a net loss of 1.7 billion yuan a year earlier. Excluding Non-GAAP, iqiyi's net profit was 187.2 million yuan ($26.3 million), compared with a net loss of 1.4 billion yuan a year earlier.

After the release of the results, iqiyi founder and CEO Gong Yu, CFO Wang Jun, Chief content Officer Wang Xiaohui and other company management held a conference call to interpret the main points of the results and answer analysts' questions.

The following is a transcript of the analyst Q & A session in this conference call: Jeffery analyst Thomas Chong: a question about the performance of members. Could you tell me more about the performance of members in the third quarter? Will the growth of the business be mainly driven by the increase in the number of members or the contribution of average revenue per member?

Gong Yu: this question is divided into two aspects. In terms of performance in the third quarter, there are three main reasons for the decline in member income compared with the same period last year. First, affected by the epidemic in China in the first half of the year, users' willingness to pay declined. In June and July, some of the planned content was delayed. At the same time, we excessively reduced market fees, resulting in poor results in the first half of the third quarter. But in August, users' willingness to pay increased, we also increased investment in content, market investment, and the content that should be launched was launched as scheduled. The increase in the number of members, which occurred after August, had a positive impact on the third quarter, but did not fully affect the entire quarter. Two of the three months in the third quarter are summer vacation, and there are a large number of student users during the summer vacation, which are our potential member users, so we use some of the promotional methods commonly used in the summer vacation, which will also lead to a small decline in the average revenue contributed by each member. As for the future development of member business, the average revenue and the number of members contributed by each member will promote the growth of member income at the same time. The driving force of the growth of the number of members mainly comes from two aspects, one is the input of content, the other is the investment of market, the input of content mainly refers to the input of high-quality content. The growth of average revenue contributed by each member mainly depends on two factors, one is the reduction of promotional discounts compared with the same period last year, and the other is the possibility of an increase in subscription prices according to the development of the industry.

Citibank analyst Alicia Yap: a question about content. Recently, we have successfully released a number of hit dramas and achieved good performance. I would like to ask the management to share how we can ensure the hot rate of homemade dramas in the future.

Wang Xiaohui: iqiyi began to implement the heat index in 2018. Since then, we have produced a total of six hot dramas worth more than 10,000, of which four appeared this year and two appeared in the last three quarters. This shows that after long-term persistence and efforts, self-made content has become one of the main forces of iqiyi's popular style content. Summing up the past experience, there are roughly three aspects of experience that have contributed to today's results. The first is that we have built a strong self-made team with a studio with diverse styles and professionals as the core. at the same time, our company has the ability to support the whole process from creativity, production to broadcasting. It provides a strong backing under the scientific mechanism, including content creativity, production, broadcasting, publicity and other auxiliary departments, which can provide more sustainable support from their own business point of view. For example, from the script level, we rely on a professional team, and relatively loose creative screening space, with the script fine polishing, for the content supply for a long-term, continuous accumulation of strength, to ensure that good content has a good creative foundation. For example, at the production level, with a good creative foundation as a guarantee, we cooperate with a rigorous startup strategy, cooperate with professional, innovative and reliable partners, and use a scientific casting mechanism to select the most suitable actors and actress. all these ensure the continuous innovation and high quality of the project. The second reason is that we have formed a set of mature and efficient operation mechanism, which runs through the whole process of creativity, production and post-broadcast, achieving efficient decision-making, strict quality control, and effective and reasonable content distribution according to the needs of users. In the future, we will continue to seek an effective balance between the diversity of content creativity and the rigor of production decisions, so as to produce more popular style content. The third reason is that our intelligent production system has gradually matured, which, to a certain extent, provides effective support for us to maintain a certain burst rate and improve efficiency.

Bank of America analyst Lei Zhang: a question about finance. The operating cash flow and free cash flow in the third quarter improved significantly compared with the same period last year and month-on-month, and free cash flow became positive for the first time. What are the main driving factors of management? Can this trend continue? What will be the situation in the next few quarters?

Wang Jun: from our point of view, the second part of the question is easier to answer. We are very sure that this trend can be sustained and we are confident that this result can be achieved. Looking back at the whole process, our starting point is cost control, reducing cost and increasing efficiency, paying attention to the return on investment of content, and focusing on quality output. This is our starting point, which we have been doing continuously for the past three quarters. But in the third quarter, we did see some very new performance that led to the possibility of a better trend, more specifically, more investment in content, higher quality of content, and higher burst rates. Better content will bring two things. one is the growth of our main business, including the increase in the number of members, which lays the foundation for our long-term development, as well as an increase in derivative income. Because the increase in the number of users, the increase in income, will certainly lead to an increase in profits, and the increase in profits will bring an increase in cash flow, so this is a positive cycle. We are encouraged and more confident by the positive cycle we saw in the third quarter.

On this basis, I would like to emphasize the advantage of homemade content itself. our core competitiveness is homemade content, and we own copyright in homemade content itself, which does bring us more than a single quarter of derivative revenue. And there is the possibility of continued derivative revenue in the future, which is high-margin and consistent with Disney.

JPMorgan Chase analyst Daniel Chen: could you please brief management on the latest regulatory situation in the long video area that you have observed?

Gong Yu: for nearly a year before the end of last year, the government departments in charge of long video, mainly the State Administration of Radio, Film and Television, including the Internet Information Office, issued a lot of policies, and the censorship of the content was obviously stricter. But since the beginning of this year, the industry has formed a new normal, so there has been no obvious change recently. For iqiyi, the content strategy is to reduce quantity and improve quality. For long video industry, content strategy is also to reduce quantity and improve quality. Coincidentally, the government authorities also have the same strategy to reduce the quantity of content production and improve the quality, all aspects are consistent. For iqiyi, after more than three quarters of practice, the best amount of content, and appropriate market investment for content, we have now found the right point, so for the future, we can achieve more healthy and sustainable development and achieve the goal of "calm growth".

Welcome to subscribe "Shulou Technology Information " to get latest news, interesting things and hot topics in the IT industry, and controls the hottest and latest Internet news, technology news and IT industry trends.