iQIYI, Inc. Q3 FY2024 earnings call

• Reinvention and innovation are core strengths. Identified trends: consumer caution due to macro headwinds and more entertainment options. - Initiatives include optimizing content production, operating apps (ITE main for long-form/subscription; ITE Lite for mini/short with ads), improving membership product/service system (combat password sharing, family accounts), applying AI across ecosystem, content strategy for mini/short dramas (complement long-form, different formats and business models). - Long-form video: regained viewership share, IP expansion (e.g., 'The Strange Tales of Tang Dynasty'). - Advertising business: down year-over-year but with solid performance in some sectors; focus on expanding ad offerings. - Technology and product: progress in virtual production, AI in content translation, plot tags, casting. - Overseas business: solid revenue growth, local content success.

In the third quarter, total revenue was RMB 7.2 billion, down 10% annually. Membership service revenue was RMB 4.4 billion, down 13% annually. Online advertising revenue decreased by 20% year-over-year to RMB 1.3 billion. Channel distribution revenue reached RMB 814 million and grew 52% annually, while other revenues decreased by 8% annually to RMB 729 million. Content cost was RMB 4 billion, down 5% annually. Total operating expenses were RMB 1.4 billion, down 5% annually. Non-GAAP operating income was RMB 369 million with a 5% margin. Net operating cash flow totaled RMB 243 million, marking ten consecutive quarters of positive cash flow.

• Focus on expanding ad offerings, especially among local brands, and capturing greater shares of ad budgets from top-tier clients. - Continue innovation across segments, leveraging AI and IP potential. - Expand local content and explore additional monetization opportunities in overseas markets, including deepening partnerships with telecom providers and hosting offline events.

• Macro headwinds affecting consumer spending. - Competition from free mini and short genres. - Challenges in content supply, especially premium female-oriented and Asian costume dramas. - Impact of economic uncertainty on consumer entertainment choices. - Risks related to AI application and technology implementation. - Overseas market uncertainties.

Q: About mini and short dramas, elaborate on integration and strategy.

A: Yu Gong stated that mini and short dramas are a complement to long-form content. Mini dramas are 1-5 minutes vertical, short dramas 5-20 minutes horizontal. For business model, mini dramas will be free for members, non-members pay-per-view; short dramas free for members, non-members ad-supported. Focus on premium head content of mini dramas.

Q: Short drama segment, competitive edge and content cost impact.

A: Yu Gong mentioned product and tech advantage on mobile apps (ITE and ITE Lite), app strategies (ITE main for long-form/subscription, ITE Lite for mini/short with ads). Content funding for mini dramas comes from lowering investment in low ROI long-form content and scientifically preparing budgets.

Q: Membership family account, strategic consideration and feedback.

A: Xianghua Yang explained family account is a high-cost-effective shared membership plan to enhance user experience. Addresses account management and trial product access challenges. Launched on November 12th, will observe performance before sharing feedback.

Q: Drama production strategy, licensing and innovation.

A: Xiaohui Wang discussed enhancing high-quality content supply, optimizing production and operational mechanisms for films, animations, variety shows. Structurally optimize content planning, curate projects for excellence, establish stricter assessment standards, and cultivate in-house studio mechanisms to attract talent.