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

CTOnews.com February 23 news, yesterday iqiyi released unaudited fourth-quarter and full-year results for the year ended December 31, 2022. According to the financial report, iqiyi's total revenue was 29 billion yuan in 2022 and 7.6 billion yuan in the fourth quarter. In 2022, iqiyi's operating profit based on non-GAAP financial indicators was 2.2 billion yuan, with an operating profit margin of 7%, of which non-GAAP operating profit in the fourth quarter was 979 million yuan, the fourth consecutive quarter of operating profit, for the first time to achieve full-year operating profit.

Photo Source: iqiyi in the key number of members, iqiyi's average daily subscription membership in the fourth quarter of 2022 was 112 million, an increase of 10.6 million over the previous quarter, and the monthly average single member income (ARM) was 14.17 yuan. In the fourth quarter of 2022, iqiyi's revenue from membership services totaled 4.7 billion yuan, up 15 percent from the same period last year. The annual revenue from membership services was 17.7 billion yuan, an increase of 6% over the same period last year.

In the same period, iqiyi's online advertising revenue was 1.6 billion yuan, up 25% from the previous month and down 7% from the same period last year. Online advertising revenue for the whole year was 5.3 billion yuan, down 25% from the same period last year. This is mainly affected by the macro environment.

It is also worth noting that iqiyi seems to have historically solved the debt problem. Gong Yu explicitly mentioned in his "letter to investors" released on February 22 that in the past 12 months, iqiyi has completed three rounds of financing, raising a total of nearly 1.3 billion US dollars, successfully solving the debt problem and greatly optimizing the capital structure.

According to the financial report, as of December 31, 2022, iqiyi had a total balance of 8.7 billion yuan in cash and cash equivalents, restricted cash and short-term investments. In the same period, the balance of convertible bonds to be repaid within the next year in the current liability account is 8.305 billion yuan.

Gong Yu believes that after solving the debt problem, iqiyi can be more calm and more focused on the development of the next 3-5 years.

CTOnews.com attached Gong Yu's "A letter to investors" Dear investors:

First of all, I would like to express my most sincere thanks to you for your trust and long-term support. It gives me great pleasure to take this opportunity to share with you our business changes and strategic thinking over the past year.

2022 will be a challenging year for many people, especially for iqiyi. But 2022 is also the year of iqiyi's break and miracle. In a highly volatile market environment, we have successfully achieved a landmark reversal of performance and made a qualitative leap in market share, operating performance and financial performance. The original strategy we have adhered to for a long time has achieved remarkable results. We have realized the transformation from "iqiyi can create popular style" to "iqiyi is a popular style manufacturing camp". Especially in the past Q4, we achieved the best performance in terms of market share, member income, operating profit, operating cash flow and free cash flow.

Our ability to mass produce high-quality original content has improved significantly. Take Q4 in 2022 as an example. We launched six popular dramas in one quarter, driving the broadcast time of members to increase by more than 40% year-on-year and more than 30% month-on-month, which is unprecedented. At the same time, Q4 our content market share remains absolutely ahead and continues to expand. According to Yunhe data, our drama solo market share increased by 20% year-on-year and 13% month-on-month.

Strong content performance leads to strong revenue performance. In the fourth quarter, core member business revenue reached an all-time high, with month-on-month growth of 15% and 13%, respectively. The average number of daily subscription members reached 112 million, a net increase of more than 10 million month-on-month. The number of retained members reached 120 million at the end of December, a net increase of more than 13 million over the end of September. The advertising business continued to recover, growing by 25% month-on-month.

In terms of profitability, operating profit reached an all-time high in the fourth quarter, with operating profit margins growing for five consecutive quarters. This fully validates the operational leverage advantages of our business model that we have repeatedly emphasized. At the same time of income growth, profits grow faster and profit margins continue to improve.

We have successfully transformed into a company that can generate positive cash inflows. In the fourth quarter, the company's operating cash flow was positive for three consecutive quarters.

We believe that the year when iqiyi was able to create miracles is mainly attributed to three things:

Take a step back, have the courage, and try to change what we can:

Going back to the end of 2021, the overall long video industry has undergone great changes, no longer blindly pursuing market share, and linking content quality to profitability like never before. We judge that the competition in the industry is about to enter a new stage of rational development, and the focus of long video competition will change from content quantity to content quality. Improving operational efficiency and pursuing profitability will become the common demand of more and more players in the industry.

Based on this judgment, we took the lead in making adjustments in the market, formulated the strategic goal of "reducing cost and efficiency, increasing revenue and reducing expenditure, and achieving a break-even at the operational level" in 2022, and clearly changed the strategy from "market share priority" to "profit priority". And launched a series of measures. On the one hand, focus on the main business, cut or shrink non-core business, and reduce non-essential investment. Although we have suffered tremendous public opinion pressure, industry pressure and capital market pressure, we have stuck to our strategy and have not wavered. On the other hand, as content input is the most important cost component of iqiyi, we focus more on increasing the input of original content and reducing investment in content with low input-output ratio, which greatly improves the efficiency of content investment.

This has enabled us to exceed expectations in achieving our strategic goals. Our initial goal was to break even at the operational level of Non-GAAP for the whole of 2022. Through his efforts over the past year, iqiyi achieved an annual operating profit of 1.3 billion yuan, an operating loss of 4.5 billion compared with the same period last year. Non-GAAP 's operating profit is 2.2 billion yuan, a sharp reversal from last year's loss of 3 billion yuan. At the same time, our cash flow health continues to improve, from negative to positive and greatly improved, gradually approaching the Non-GAAP operating profit level. As of Q4 in 2022, we have three consecutive quarters of positive operating cash flow and two consecutive quarters of positive free cash flow.

More importantly, while the financial performance has been greatly reversed, we are pleased to see an endless stream of excellent works on the platform. Our long-standing original strategy began to show results, helping us to build a solid competitive barrier and form an absolute industry leading edge. Mature and efficient content production methodology and strong operational capabilities make us have the ability to create high-quality content in batches. By the end of 2022, iqiyi's popularity of a total of seven episodes in iqiyi's history has exceeded 10,000. There were five in 2022, four of which were original content by iqiyi.

In the first quarter of 2023, we ushered in the phenomenal popular drama "the Wind", which is also the eighth hot series. All the indicators of "Storm" break the historical record of iqiyi platform: iqiyi has the fastest heat value of more than 10,000, with its peak heat, average daily broadcast time, average daily coverage of users, and member income ranking first in the history of the platform. it is a veritable national phenomenon-level drama. This further validates our content flywheel effect, and content production and operations enter a virtuous circle, that is, "stabilizing the supply of quality content-driving membership growth and cost efficiency optimization-driving profitability-producing more quality content". Therefore, we firmly believe that such success can be replicated, and we can continue to surpass ourselves to produce better content in the future.

Be calm and resolute and face up to what we can't change:

Looking back 3-4 years ago, when the capital market environment was better, we raised money in the open market in the form of convertible bonds. In the past two years, under the influence of unstable international relations, epidemic situation and weak macro-economy, the whole capital market has shown great fluctuations.

Even so, we still try our best to find a way to break the game. In the past 12 months, we have completed three rounds of financing, raising a total of nearly 1.3 billion US dollars, successfully solving the debt problem and achieving a substantial optimization of the capital structure. Financing has not only brought valuable capital reserves to iqiyi, but more importantly, in a very volatile market environment, it has helped us find investors who still firmly support us, including Baidu, PAG, Oasis and other investors who do not want to be named but also believe in iqiyi's future.

The most recent financing took place in January 2023. We seized the best time window of the market to complete the open market IPO, and while doing our best to protect the interests of investors, we achieved a substantial optimization of the capital structure, laying a solid foundation for the long-term development of the company. Based on the above efforts, we have successfully turned "impossible" into "doable", which enables us to be more calm and focus on the development of the company in the next 3-5 years.

Committed to action, adhere to the faith, with real wisdom to turn things around, to ensure the company's more long-term development.

The interests of users and high-quality content is our firm belief. We always firmly believe that long video content is people's rigid demand, although short video (we call it "delicious video") occupies more users' time, but high-quality film and television content with more ideas, it must be the long-term goal of users' video consumption upgrading. As evidence, we see that with the outbreak of iqiyi's content performance this year, more users stay on our platform to watch high-quality content and pay for it.

In 2022, the average number of Q4 daily subscribers reached 112 million, a net increase of more than 10 million month-on-month. The number of retained members reached nearly 120 million at the end of December, a net increase of more than 13 million over the end of September, and the current membership growth momentum is still strong. Time is our best friend. It is the long-term persistence of the original content strategy that ensures iqiyi's market leading position and differences. This is the real wisdom that we think can support the long-term development of the company.

In terms of content, we are well aware that high-quality content is our core competitiveness, so we unswervingly promote the original strategy. Up to now, iqiyi's original content, especially the popular original dramas, has become the main force of our content supply and income contribution. As the success of the original strategy is due to long-term persistence, intensive capital investment, long-term cultivation of talents, and relying on the continuous accumulation and innovation of technology, it can not be easily copied in order to ensure the continuous output of popular style content.

We began to do original creation on a large scale in 2014, achieved a breakthrough in 2022, worked in the spirit of craftsmen for nearly 10 years, and invested nearly 20 billion yuan in original content in the past two years alone. The establishment of the mechanism of multiple studios is the guarantee for the successful implementation of our content original strategy. At the same time, we have gradually established a complex, data-driven, efficient decision-making film production management system, which can cover every critical moment in the whole life cycle of content production. Thanks to this, the contribution of original content has been greatly improved, and it has become the main force of content supply. In the new key series each year, the proportion of original content has increased from 20% in 2018 to more than 50% in 2022.

On the other hand, technology is not only a guarantee for the industrialization of the film and television production industry, but also an important weapon for us to win in the future. China's film and television production industry is gradually turning from the "workshop" mode of operation in the past to industrialization, which we insist on practicing and will continue to promote in the future. For example, the film and television production management system developed by iqiyi can help the film and television production team effectively improve project management ability, improve content quality and save costs.

In addition, we use virtual production technology to promote the film and television industrialization of content shooting. Virtual production is not affected by region and weather, and the same set of virtual assets can be reused in multiple projects, which can advance the work of post-production and shorten the production and launch cycle. Virtual assets can also be reused to other businesses in the future, creating more ways to increase income, such as digital asset operation, IP value-added services, meta-universe and so on.

In addition, we pay close attention to the industry opportunities brought about by technological advances, such as artificial intelligence generated content (AIGC) and other innovative technologies. Together with our strategic partner Baidu, we will explore the application scenarios of AIGC in the long video industry, such as improving content production efficiency, content distribution and promotion. We believe that AIGC strategy will help iqiyi unleash more potential, further improve our overall business efficiency and create greater value.

We are always committed to providing users with the most attractive content, high-quality audio-visual experience, the richest content rights and benefits and membership benefits. For example, we continue to improve our intelligent recommendation system to help users find the content they are most interested in in the most convenient way; we provide an industry-leading immersive content experience through interactive video, which has been widely used in our dramas and variety shows. Special models have been launched for teenagers, the elderly and visually impaired users to meet their unique user needs. We continue to expand our exclusive membership benefits package, including exclusive IP souvenirs, time-limited discounts and exclusive fan events.

These measures helped us achieve a landmark reversal of performance in 2022, creating a miraculous year for iqiyi. In 2023, our goal is "high-quality growth". Under this strategy, the company's goal is to achieve both revenue and operating profit growth. in order to achieve high-quality growth, we will continue to focus on the development of iqiyi's core business and invest in new business rationally, and focus on increasing investment in high-quality content. maintain a high-quality and diversified content portfolio; appropriately increase market investment on the premise of ensuring efficiency.

We also suggest that our investors take a longer-term view of iqiyi's achievements and re-examine the long-term video industry as a whole. While iqiyi continues to take the lead in the industry in 2022, the return on investment in the industry as a whole is also picking up rapidly, which is the result of structural changes in the industry, especially the more concentrated supply of platform-led original content. This will make the industry healthier and every participant in the industry will benefit from it.

If the road is long and long, the line will come, the line will not stop, and the future can be expected. Looking to the future, we will stick to our faith and create higher value for our users, partners and investors. We still believe that iqiyi's best time is yet to come.

Gong Yu

Iqiyi founder and CEO

February 22, 2023

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