Company Overview - iQIYI, Inc. is a leading provider of online entertainment video services in China, combining creative talent with technology to foster innovation and produce blockbuster content [7] - The company produces, aggregates, and distributes a wide variety of professionally produced content and other video formats, distinguishing itself with a technology platform powered by advanced AI and big data analytics [7] - iQIYI has built a massive user base and developed a diversified monetization model, including membership services, online advertising, content distribution, online games, IP licensing, talent agency, and online literature [7] Repurchase Right Announcement - iQIYI announced a Repurchase Right for holders of its 4.00% Convertible Senior Notes due 2026, allowing them to require the company to repurchase their Notes for cash on August 1, 2024 [1][3] - The Repurchase Right begins on July 2, 2024, and expires on July 30, 2024, with the repurchase price equal to 100% of the principal amount plus any accrued and unpaid interest [1][4] - As of May 28, 2024, there was approximately US$395.6 million in aggregate principal amount of the Notes outstanding, with a total cash purchase price of about US$397.6 million if all Notes are surrendered for repurchase [3]

BEIJING, May 28, 2024 (GLOBE NEWSWIRE) -- iQIYI, Inc. (Nasdaq: IQ) ("iQIYI" or the "Company"), a leading provider of online entertainment video services in China, today announced that it is notifying holders of its 4.00% Convertible Senior Notes due 2026 (CUSIP No. 46267XAE8) (the "Notes") that pursuant to the Indenture and the First Supplemental Indenture, each dated as of December 21, 2020 (together, the "Indenture") relating to the Notes by and between the Company and Citicorp International Limited, as t ...

Investment Rating - Buy (First Coverage) [1] Core Views - The company's ARM (Average Revenue per Member) has grown for six consecutive quarters, reaching a historical high in 2024Q1 [2] - The company's content distribution revenue reached a historical high in 2024Q1, indicating strong content production capabilities [2] - The company's market share in key content categories continues to lead, with over 70% of new programs being original content [2] - The company's non-GAAP operating profit margin improved by 2 percentage points year-over-year to 14% in 2024Q1 [5] Business Performance - Total revenue for 2024Q1 decreased by 5% year-over-year to RMB 7.9 billion (USD 1.1 billion) [5] - Membership service revenue decreased by 13% year-over-year to RMB 4.8 billion (USD 660 million) in 2024Q1, mainly due to a high base effect from the previous year [2] - Online advertising service revenue increased by 6% year-over-year to RMB 1.5 billion (USD 210 million) in 2024Q1, driven by growth in performance advertising [2] - Content distribution revenue increased by 28% year-over-year to RMB 930 million (USD 130 million) in 2024Q1 [2] - Other revenue increased by 7% year-over-year to RMB 720 million (USD 100 million) in 2024Q1, mainly due to increased revenue from third-party collaborations [2] Content Strategy - The company has a diversified and high-quality content portfolio, with over 70% of new programs being original content [2] - Key programs such as "Chasing the Wind" and "Southbound and Northbound" have achieved significant market share and viewership records [2] - The company continues to innovate in content categories such as movies, variety shows, children's programs, and animation [2] Financial Forecast - Non-GAAP net profit attributable to the parent company is expected to be RMB 3.12 billion, RMB 3.80 billion, and RMB 4.45 billion for 2024, 2025, and 2026, respectively [2] - The current stock price corresponds to a PE ratio of 10x, 9x, and 7x for 2024, 2025, and 2026, respectively [2] Cost and Profitability - Operating costs decreased by 5% year-over-year to RMB 5.6 billion (USD 780 million) in 2024Q1, with content costs also decreasing by 5% to RMB 4.0 billion (USD 550 million) [15] - Non-GAAP operating profit increased by 5% year-over-year to RMB 1.1 billion (USD 150 million) in 2024Q1 [16] - The company generated positive operating cash flow for eight consecutive quarters, with free cash flow of RMB 920 million (USD 130 million) in 2024Q1 [16] Content Pipeline - The company has a rich content pipeline for 2024-2025, including dramas, variety shows, and movies, with a focus on original and high-quality content [12][13][14]

Core Insights - iQIYI is launching a VR immersive theater based on its popular series "Love Between Fairy and Devil" in Galaxy Macau this summer, highlighting its strategy to expand location-based entertainment through a combination of intellectual property and technology [1][2] - The VR experience will feature innovative technology such as interactive gesture control and flight motion simulators, providing an engaging and realistic experience for players [2] - This project represents the second collaboration between iQIYI and Galaxy Macau, aiming to enhance the cultural and entertainment landscape of the Greater Bay Area [2][3] Company Strategy - iQIYI aims to leverage its original IP "Love Between Fairy and Devil" to extend its cultural value and market appeal through VR technology, making Chinese culture accessible to a broader audience [3] - The company is committed to creating synergies between IP, technological innovation, and cultural tourism, with plans for further collaborations to explore new offline entertainment formats globally [3] Market Impact - The immersive theater is expected to attract visitors and stimulate growth in the cultural and entertainment sectors of the Greater Bay Area, reinforcing Macau's status as a hub for performing arts [2][3]

Investment Rating - The report maintains a "Buy" rating for the company with a target price of $7.76 per ADS [2][4]. Core Insights - The company's revenue for Q1 2024 reached 7.9 billion, representing a year-over-year increase of 5.1% and a quarter-over-quarter increase of 2.9%, primarily driven by growth in content distribution revenue [1]. - The report anticipates Q2 2024 revenue to be around 7.7 billion, with a projected GAAP net profit of 420 million, reflecting a year-over-year increase of 14.8% but a quarter-over-quarter decrease of 36% [1]. - Membership service revenue for Q1 2024 was 4.8 billion, down 13.5% year-over-year, attributed to a high base effect from the previous year [1]. - Advertising revenue for Q1 2024 was 1.48 billion, up 5.6% year-over-year, driven by growth in performance advertising [1]. - Content distribution revenue for Q1 2024 was 930 million, showing a significant year-over-year increase of 26.8% [1]. Financial Summary - The company expects GAAP net profits for 2024 to be 3.017 billion, with projected growth rates of 56.68% in 2024, 47.68% in 2025, and 25.99% in 2026 [2][3]. - The gross margin for Q1 2024 was 29%, with a year-over-year increase of 0.30 percentage points [1]. - The report projects a steady increase in revenue from 31.873 billion in 2023 to 39.633 billion in 2026, with corresponding growth rates of 9.91% in 2023 and 4.87% in 2024 [3][9].

Investment Rating - The report assigns a "Buy" rating to the company, iQIYI (IQ US), with a target price of $6.70, indicating a potential upside of 15.7% from the current price of $5.79 [1][3][14]. Core Insights - iQIYI's Q1 2024 revenue reached 7.93 billion RMB, a year-over-year decline of 5% but a quarter-over-quarter increase of 3%, aligning with market expectations. Adjusted operating profit was 1.1 billion RMB, exceeding expectations of 800 million RMB and 700 million RMB from the market, resulting in an adjusted operating margin of 14%, benefiting from better-than-expected cost optimization [1][2]. - The report highlights the impact of AIGC (Artificial Intelligence Generated Content) on operational efficiency and advertising revenue growth, with advertising income increasing by 6% year-over-year to 1.5 billion RMB, driven by double-digit growth in performance advertising [2][12]. - The company is expected to face increased competition in the second quarter, leading to a slight downward adjustment in membership revenue expectations for 2024, although operating profit expectations remain unchanged due to faster-than-expected cost optimization [2][12]. Financial Overview - For the fiscal year ending December 31, 2024, the company is projected to generate revenue of 32.65 billion RMB, with a net profit of 3.50 billion RMB, reflecting a year-over-year growth of 2.4% and 23.8% respectively [3][15]. - The report provides a detailed financial outlook, including projected earnings per share (EPS) of 3.60 RMB for 2024, with a price-to-earnings (P/E) ratio of 11.6 times [3][15]. - The company’s cash flow from operations is expected to improve significantly, with operating cash flow projected at 2.78 billion RMB in 2024 [15]. Market Position and Strategy - iQIYI continues to focus on differentiated content strategies, particularly in realistic themes, which are expected to maintain its competitive edge in the market [2][12]. - The report notes that the company is exploring more opportunities for membership value-added services, which will further enhance its Average Revenue per Member (ARM) [2][12]. - The international market shows promising growth, with overseas membership revenue increasing by over 80% in regions like Hong Kong and the UK, indicating a successful local content strategy [2][12].

Investment Rating - The report assigns a neutral rating to iQIYI (IQ.O) with a price target based on expected earnings per share (EPS) growth and market performance [1]. Core Insights - iQIYI's Q1 2024 performance exceeded expectations, with revenue of 7.927 billion yuan, a year-over-year decrease of 5.0%. The operating profit was 0.945 billion yuan, with an operating margin of 11.9% [1]. - The report highlights the continuous improvement in Average Revenue per Member (ARM), which has increased for six consecutive quarters. The company aims to enhance ARM through refined operations and value-added services [1]. - The content distribution revenue saw a significant year-over-year increase of 27.6%, driven by the release of key content [1]. - iQIYI maintains the highest market share in the drama segment for nine consecutive quarters, with over 70% of new key dramas being original content [1]. - The company has successfully transitioned to profitability, achieving positive GAAP net profit for the first time in 2023 and maintaining positive Non-GAAP net profit for nine consecutive quarters [1]. Summary by Sections Financial Performance - Q1 2024 revenue was 7.927 billion yuan, with a breakdown showing membership revenue at 4.799 billion yuan (60.5% of total revenue), advertising revenue at 1.482 billion yuan (18.7%), content distribution revenue at 0.928 billion yuan, and other revenue at 0.718 billion yuan [1]. - The operating cost was 5.6 billion yuan, with content costs at 4 billion yuan, reflecting a year-over-year decrease of 4.8% [1]. - The gross margin improved to 29.0%, with GAAP and Non-GAAP operating margins at 12% and 14%, respectively, significantly exceeding market expectations [1]. Market Position - iQIYI's drama market share remains the highest in the industry, with a focus on enhancing original content and expanding into various genres [1]. - The introduction of new content formats, such as micro-theater and children's programming, is expected to strengthen its competitive position [1]. Future Outlook - The report suggests that iQIYI's content pipeline is robust, with anticipated releases like the "Fox Demon Little Red Lady" series, indicating a positive outlook for continued growth [1].

Investment Rating - The investment rating for the company is "Buy" with a market price of USD 5.26 and a sector rating of "Outperform" [1][2]. Core Views - The company experienced a slight decline in membership revenue due to a high base effect from the previous year, but maintained high operational efficiency, achieving the best quarterly operating profit [2]. - The company is expected to focus on maximizing long-term membership revenue rather than just increasing membership numbers, with new growth opportunities anticipated from overseas business, IP derivative payments, and AIGC [2][3]. Financial Performance Summary - In Q1 2024, the company's operating revenue was CNY 79.27 billion, a year-on-year decrease of 5% but a quarter-on-quarter increase of 3% [2]. - Non-GAAP operating profit reached CNY 10.86 billion, with an operating profit margin of 14%, marking the best quarterly performance [2][4]. - GAAP net profit was CNY 6.55 billion, up 6% year-on-year and 41% quarter-on-quarter [2]. - Membership revenue for Q1 2024 was CNY 47.99 billion, down 13% year-on-year but stable quarter-on-quarter [2][4]. - Advertising revenue was CNY 14.82 billion, a year-on-year increase of 6% but a quarter-on-quarter decrease of 10% [2]. - Content distribution revenue surged to CNY 9.28 billion, up 27% year-on-year and 83% quarter-on-quarter, primarily due to increased important copyright sales [2][4]. Valuation and Future Projections - The company is projected to continue building a stable production system with a focus on profit and cash flow performance [2]. - Expected non-GAAP net profits for 2024, 2025, and 2026 are CNY 40.0 billion, CNY 45.8 billion, and CNY 51.5 billion respectively, with corresponding EPS of CNY 4.09, CNY 4.64, and CNY 5.21 [3][4].

Investment Rating - Maintain BUY with a target price of US$8.60, representing a 48.5% upside from the current price of US$5.79 [5][3]. Core Insights - The company reported a strong margin surprise in 1Q24, with adjusted net profit at RMB844 million, which is 91% above consensus expectations, and revenue 1% above consensus [3][10]. - For 2Q24, revenue is expected to decline by 1% year-over-year, with subscription revenue down 5% and advertising revenue up 7%, supported by a rich content pipeline [3][20]. - The management is optimistic about achieving a full-year operating profit target of RMB5 billion for FY24, backed by improved operational efficiency and a robust advertising strategy [3][20]. Financial Performance - 1Q24 revenue was RMB7,927 million, down 5% year-over-year, but 1% above consensus estimates [10][11]. - Adjusted operating profit margin reached 14%, exceeding estimates by 3 percentage points due to enhanced content strategy and operational efficiency [3][10]. - Operating cash flow for 1Q24 was RMB937.8 million, indicating strong cash generation capabilities [3][10]. Revenue Breakdown - Membership services revenue declined by 13.5% year-over-year in 1Q24, while online advertising revenue grew by 5.6% year-over-year, driven by performance-based ads [11][12]. - The company anticipates continued growth in advertising revenue, particularly from sectors like food & beverage and telecommunications, as traditional spending recovers in 2Q24 [3][20]. Future Outlook - The company has a strong content pipeline with anticipated releases such as "Fox Spirit Matchmaker" and "Lost in the Shadows," which are expected to drive subscriber engagement and revenue growth [3][20]. - Long-term forecasts for FY24-26 earnings remain unchanged, with expectations of continued margin improvement and operational efficiency [3][20]. Valuation Metrics - The company is projected to achieve revenue of RMB34,663 million in FY24, with adjusted net profit expected to reach RMB3,714 million [20][18]. - The P/E ratio is projected to decline from 11.0x in FY24 to 9.1x in FY26, indicating potential for value appreciation [22][23].

Financial Data and Key Metrics Changes - The total revenues for Q1 2024 were RMB7.9 billion, with membership services revenue at RMB4.8 billion, remaining stable sequentially but down 13% year-over-year due to high base effects from the previous year [28][29] - Non-GAAP operating income reached a record high of RMB1.1 billion, with a corresponding margin of 14% [5][30] - Operating cash flow totaled RMB938 million, remaining positive for eight consecutive quarters, indicating continuous improvement in the balance sheet [30] Business Line Data and Key Metrics Changes - Membership services revenue was flat sequentially but down 13% year-over-year, attributed to the high base effect from the previous year and increased offline entertainment during the Chinese New Year [9][28] - Advertising revenue grew by 6% annually to RMB1.5 billion, driven mainly by performance ads, which achieved double-digit annual growth [20][29] - Content distribution revenue reached RMB928 million, growing 27% annually, reflecting enhanced content production capabilities [6][29] Market Data and Key Metrics Changes - The company maintained its top position in viewership across major content categories, holding the number one position for viewership in the general category for nine consecutive quarters [7][11] - Membership revenue in overseas markets, such as Hong Kong and the UK, grew nearly 80% annually [25][26] Company Strategy and Development Direction - The company is focused on high-quality growth, emphasizing premium content and operational efficiency to enhance long-term membership revenue [5][11] - Generative AI is being integrated into advertising and content production to improve efficiency and ROI for advertisers [20][23] - The company aims to expand its content offerings to cater to diverse demographics, including the elderly and children, enhancing their viewing experiences [50][51] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the long-term growth potential of the membership business, focusing on improving content quality and diversity [35] - The outlook for advertising is cautiously optimistic, with expectations for a resurgence in brand ad spending in Q2, driven by a strong lineup of content [22][45] - The company plans to leverage generative AI and virtual reality technologies to explore new business opportunities [50] Other Important Information - The company will no longer disclose subscriber numbers and average revenue per member (ARM) to provide a more comprehensive view of business performance [32][34] - The success of the drama "To the Wonder" highlights the company's commitment to balancing content quality with commercial success [39][40] Q&A Session Summary Question: Why did the company not disclose subscriber numbers this quarter? - Management explained that subscriber numbers only partially indicate business progress and could disturb overall business development [32][34] Question: What is the investment return for the drama "To the Wonder"? - Management indicated that the drama achieved profitability through diverse revenue streams, affirming the potential for high-quality content to yield substantial commercial success [39][40] Question: What is the outlook for online advertising in 2024? - Management expects continued strong growth in performance-based advertising, driven by the application of generative AI [41][43] Question: What are the company's long-term strategic focuses? - The company aims to enhance content quality and diversity, leverage generative AI, combat piracy, and improve domestic market operations while cautiously investing in overseas markets [50][51]