爱奇艺：Recovery still takes time

Investment Rating - The report maintains a "BUY" rating for iQIYI, indicating a potential return of over 15% over the next 12 months [1][6]. Core Views - iQIYI's 3Q24 results are expected to be largely in line with previous expectations, with total revenue forecasted to decline by 10% YoY and 3% QoQ to RMB7.2 billion, primarily due to macroeconomic uncertainties affecting advertising budgets and a lack of blockbuster content impacting membership revenue growth [1]. - Non-GAAP net income for 3Q24 is projected to decline by 32% YoY but increase by 68% QoQ to RMB426 million, driven by foreign exchange gains from CNY appreciation [1]. - The company is facing pressure in both membership and advertising businesses, with membership revenue expected to drop by 13% YoY and 3% QoQ to RMB4.4 billion, and online advertising revenue anticipated to decline by 21% YoY and 9% QoQ to RMB1.3 billion [1]. - iQIYI is implementing new initiatives to revitalize business growth, including launching Short Play Theatre and Mini Play Theatre for premium members, developing AI agent TaoDou 2.0, and introducing more Chinese content to overseas markets [1]. - The target price for iQIYI has been lowered by 4% to US$4.80, based on a 15.0x FY25E P/E, reflecting a discount to the sector average due to intense competition in the video streaming sector [6][7]. Financial Summary - For FY24E, total revenue is estimated at RMB30.2 billion, with a slight decrease of 0.1% from previous estimates for FY25E and FY26E [5]. - Gross profit for FY24E is projected at RMB7.5 billion, with a gross margin of 24.7% [5]. - Non-GAAP net profit for FY24E is expected to be RMB1.8 billion, with a non-GAAP EPS of RMB1.9 [5]. - The report indicates a decline in gross margin by 5.1 percentage points YoY to 22.0% in 3Q24, primarily due to operating deleverage [1].