iQIYI, Inc. (IQ) Earnings

Management highlights

### Strategic Transformation - Officially launched a two-pillar strategic transformation: 1) Shift from a centralized, media-centric platform to a decentralized, creator- and user-centric ecosystem, enabled by AI that lowers content creation barriers and unlocks mass content supply; 2) An all-in approach to AI to revolutionize both live-action production and pure AIGC content, with a core goal of maximizing cost efficiency without compromising content quality. - The two pillars create a self-reinforcing flywheel: AI expands content supply to accelerate decentralization, and increased creator participation boosts user engagement and platform scale. ### Decentralized Ecosystem Progress - Refreshed the IQID IT Creator Center core creator hub in April 2026. Daily average content uploads across short-cycle, AI-friendly content categories grew 30% to 50% sequentially from Q1. Daily views for micro-dramas and micro-animations increased double digits between March and June 2026. - Short-form dramas (15-25 minute episodes) hit a major milestone: market share doubled from 25% in March to 50% in June, taking the number one position in China for the first time. This format cuts average per-minute costs by over 50% and reduces production-to-approval timelines by 30% to 50% compared to long-form dramas. ### AI Production Progress - AI streamlines end-to-end live-action production workflows: on the variety show *Her Prime Season 2*, AI delivered a 10x improvement in rough cut efficiency compared to traditional methods. - For AIGC-suitable formats, AI reduces production costs and timelines by 70% to 90% compared to traditional production, and enables content beyond the physical limits of live-action shooting. - Launched *Mystic Tale Cheetah* in July 2026, the industry's first AIGC Internet feature film with official distribution licensing, marking the shift of long-form AIGC from technical testing to standardized large-scale production. - Year-to-date, 16 AI-generated short-form dramas have launched under a revenue-sharing model. A diversified pipeline of AIGC titles is planned for H2 2026, with an expanded pipeline across more categories planned for 2027. - Launched NADO-PRO, an end-to-end AI production platform for creators that combines in-house and third-party optimized models with ITE's decades of professional content expertise. The platform replaces high-cost production steps with low-cost tools, lowers creator entry barriers, speeds up production, and is evolving from a tool to a full creator ecosystem that connects content demand, creators, and commercial returns. ### Premium Original Content Performance - ITE content won 14 of 23 awards at the Shanghai Magnolia Awards (one of China's top TV/film awards), including 10 of 11 drama category awards, outperforming all peers. - Maintained number one market share in long-form drama, film, and children's content in China, and gained number one share in short-form drama for the first time. - Strong performance across all content verticals: top-performing long-form dramas hit 9,300+ popularity index scores; premium variety shows hit new franchise popularity highs; original animation secured two year-round engaging long-running titles; children's content reinforced market leadership with hit original and licensed IP. ### Domestic Business Operational Updates - Membership: Implemented refined targeting, including student/teacher discounts that drove a 60%+ year-over-year increase in this subscriber segment. Launched interactive express packages across 16 dramas that drove an 80% year-over-year increase in participant numbers. Expanded co-branded joint memberships with popular top-tier youth brands to drive growth and retention. ### International Business Operational Updates - Local original content gained traction: ITE's first original Indonesian drama became the top local internet drama in Indonesia in H1 2026. - Launched multilingual AI-generated micro-dramas overseas (English, Thai, Korean) produced via NADO-PRO. The first original AIGC overseas micro-drama ranked top three for micro-drama revenue across all international platforms and recovered all production costs within the same launch quarter, demonstrating stable profit potential. - Expanded AIGC supply via both original in-house production and external partnerships with global script development and tool ecosystems.

Guidance

- The company expects the two core strategic pillars (decentralization and all-in AI) to deliver structural improvements to content costs, revenue quality, profitability, and cash flow over time, with profit and cash flow contributions expected to steadily materialize as AI initiatives scale across all operations. - A broader slate of AIGC content across expanded categories will launch in 2027, following a diversified pipeline of AIGC titles scheduled for H2 2026. - For international expansion: the company will not chase market entry count growth, and will only expand into new markets after validating strong revenue quality and profitable business models, following the unit economics-driven expansion framework proven in mature markets like Thailand. - As of June 30 2026, $24.1 million of the $100 million approved share repurchase program (effective through September 2027) has been completed, with remaining capacity available for future repurchases.

Segment performance

Total revenue for Q2 2026 was RMB 6.3 billion, a 1% sequential increase: - Membership Services: RMB 4.0 billion in revenue, down 4% sequentially, accounting for ~63.5% of total revenue. The sequential decline was attributed to seasonality. - Online Advertising: RMB 1.2 billion in revenue, flat sequentially, accounting for ~19.0% of total revenue. Drama-targeted brand ad revenue grew double digits year-over-year, with beauty, personal care, and health sectors leading growth. AI-enabled performance ads returned to year-over-year growth, with strong growth from small and mid-sized advertisers, especially in AI applications, instant retail, and e-commerce. - Content Distribution: RMB 681.5 million in revenue, up 90% sequentially, driven by increased drama series distribution, accounting for ~10.8% of total revenue. - Other Revenues: RMB 344.9 million in revenue, down 19% sequentially, accounting for ~5.5% of total revenue. Cost and profitability: - Content cost: RMB 3.8 billion, up 2% sequentially. - Total operating expenses: RMB 1.1 billion, down 6% sequentially. - Non-GAAP operating loss narrowed 80% sequentially from RMB 148.6 million in Q1 to RMB 30.3 million, near breakeven. - Net operating cash flow increased to RMB 339.6 million from RMB 186.4 million in Q1. Overseas business (a subset of total revenue): Q2 2026 total membership revenue grew 40% year-over-year. Brazilian membership revenue surged over 215% YoY, Mexican revenue up 150% YoY, and Arabic market revenue up 85% YoY. C-Drama international membership revenue grew over 40% YoY, while micro-drama membership revenue grew over 300% YoY.

Risks & headwinds

- The company notes that all forward-looking statements are subject to risks and uncertainties that could cause actual results to differ materially from current expectations, including the risks outlined in the company's public SEC filings. Key specific risks implied by the strategic shift include: slower-than-expected AI adoption, unmet cost efficiency improvement targets, slower creator onboarding and content growth than projected, and shifting local regulatory and market conditions for international expansion.

Analyst Q&A

• Q: What are IQIYI's key future strategic and operational priorities amid rapid AI market growth? /

  A: Management confirmed the two core pillars of the company's strategic transformation: shifting from a centralized media platform to a decentralized creator ecosystem, and an all-in investment in AI to transform content production. Premium content remains core to the business, and AI will lower production costs, shorten cycles, and enable new types of premium content. Initial progress is already visible in growing creator numbers and content uploads, with initial AIGC production breakthroughs achieved. Management expects these two strategies to deliver structural improvements to costs, revenue quality, profitability, and cash flow over the long term.

• Q: What is AIGC strategy across different content categories? /

  A: Management noted that AI lowers basic production barriers but does not lower the bar for high-quality creativity and content judgment. The company will leverage AI to improve production economics while reinforcing core competitive advantages in storytelling, aesthetic judgment, and visual language. Micro-dramas and micro-animations are AI-native, so AIGC will be the primary supply, with revenue-sharing and decentralized operations used for rapid content refresh. Animations and children's content have mature CG industries well-suited for AI, with rapid adoption and an expanded pipeline of AIGC titles planned for 2027. Short-form dramas and internet feature films actively adopt AI to explore new genres and expand content diversity, with 16 AIGC short-form dramas already launched under revenue sharing. Long-form dramas and films will focus on maintaining live-action quality first, using AI only to reduce production costs and support back-end workflows.

• Q: What is ITE's core competitiveness in the AI era, and what value does it offer creators? /

  A: Management stated that competition in the AI-era video industry centers on end-to-end capabilities from content concept to commercialization. ITE's decade-long core competencies include talent aggregation, creative expertise, industrialized production, regulatory compliance knowledge, content distribution, and diverse monetization. For creators, ITE focuses on three core value propositions: help creators get their content seen by the platform's large existing audience, help creators earn stable revenue, and help creators gain industry recognition. ITE has built a 7-pillar creator support system including the IQID Creator Center, NADO-PRO production platform, offline creative centers, training, funding support, benchmark AI content channels, and dedicated creator support. ITE will host its first creator conference in Beijing on August 20 to discuss ecosystem and AI opportunities.

• Q: How is ITE replicating its mature overseas operating experience from markets like Thailand to new markets? /

  A: Overseas business maintained 40% YoY membership revenue growth in Q2 2026 and remains profitable on a managerial accounting basis. Thailand, the earliest entered mature market, continues to deliver steady growth and improving profitability. Markets are categorized into mature (focus on stable profitability), growth (focus on accelerated revenue growth with disciplined investment), and potential markets. The proven Thailand operating model, which is replicated across new markets, includes: using C-Drama as a foundational content brand with sustained marketing, expanding local content tailored to local audience preferences, partnering with local carriers, platforms, and payment providers to scale membership, and using AI to improve translation, distribution, and production efficiency. Content preferences and market structures differ by market, so only the underlying capabilities are replicated, with local teams making targeted adaptations. ITE does not chase market entry count, and only expands after validating strong revenue quality and profitability in new markets.