iQIYI, Inc. American Depositary Shares 2026 Q2 Earnings Call

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Hello, everyone, and thank you for joining iQIYI's second quarter 2026 earnings conference call. The company's results were released earlier today and are available on the company's investor relations website at ir.iQiyi.com. On the call today are Mr. Yu Gong, our founder, director, and CEO; Mr. Ying Tian, our CFO; Mr. Xiaohui Wang, our CCO, Chief Content Officer; Mr. Youqiao Duan, Senior Vice President of our membership business; Mr. Xianghua Yang, Senior Vice President of international and online game business; and Mr. Gang Wu, Senior Vice President of brand advertising business. Mr. Gong will give a brief overview of the company's business operations and highlights, followed by me, who will go through the financials. After the prepared remarks, the management team will participate in the Q&A session.

Before we proceed, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause actual results to differ materially from our current expectations. Potential risks and uncertainties include, but are not limited to, those outlined in our public filings with the SEC. iQIYI does not undertake any obligation to update any forward-looking statements except as required under applicable law. I will now pass on to Mr. Gong.

Please go ahead. Hello, everyone.

In the second quarter, we continued to reinforce our core business, high quality, diversified content, powered by top industry-leading performance. According to Enlightent Data, we maintained the number 1 market share in each of the long-form drama, film, and the children's content categories. For short-form dramas, Abrege, we made a major breakthrough, reaching number 1 market share for the first time in June. Financial performance also improved quarter-over-quarter. Total revenues grew sequentially, and our non-GAAP operating loss narrowed substantially, approaching breakeven. We are fully announcing our strategic transformation. First, we are shifting from a centralized media to a decentralized creator and a user-centric social media ecosystem. AI can dramatically lower the cost and the barrier to content creation, turning what was once a niche professional activity into a mass capability, and triggering an unparalleled surge in content supply.

Because traditional centralized models cannot accommodate this scale and diversity, we are upgrading our content acquisition and distribution mechanism to efficiently connect creators and audiences. Second, we are taking an all-in approach on AI to revolutionize both live action production and pure AIGC. Our guiding principle is clear: maximizing cost efficiency without compromising quality. Together, these two pillars reinforce each other like a flywheel. AI drives rapid growth in content supply, which help us move faster toward a decentralized model. As we decentralize, more creators can participate, users get more engaged, and our platform becomes even stronger. In Q2, both strategies moved from plans to measurable results over time. They will structurally improve our content costs, revenue quality, profitability, and cash flow. Let me walk you through the progress. Our decentralization. We are improving our platform and accelerating the creator ecosystem.

In April, we refreshed our core creator hub, the iQIYI Creator Center. Early signs are promising. The number of creators and uploads are all trending higher. Content with short production cycle, lower production scale, and a good fit for AI-driven creation has seen especially strong growth. For various types of content, the daily average number of uploaded works in the second quarter increased by 30% to 500% compared to the first quarter. In June, daily views for micro dramas and micro animations were up by double digits compared with March. Short-form dramas and animation are also gaining traction. Looking ahead, more long-form video categories will join the decentralized content ecosystem as we preserve iQIYI's premium content advantage. We will broaden our content slate by adopting lighter, more flexible content acquisition models. On content production, AI is substantially optimizing production efficiency and cost structure.

First, in live action, AI is streamlining the entire workshop workflow. For example, we leveraged AI in our original, "Her Prime" Season 2, "Jie Jie Dang Jia," to achieve a tenfold leap in rough cut efficiency compared to traditional methods. Second, for content types well-suited to AIGC production can reduce production costs and timelines by 70% to 90% compared with traditional methods, while pushing past the physical limits of live action shooting. Naturally, AI adoption is faster in AIGC-heavy formats. We have launched multiple AI-generated internet feature films. A major milestone was the July premiere of "Mystic Tale: Qi Tan," the industry's first AIGC internet feature film to launch with an internet drama and a few distribution methods. This marks the official shift of long-form AIGC from technical testing to standardized large-scale production.

In addition, year-to-date, we have launched 16 AI-generated short-form dramas under our revenue-sharing model, with the thriller, "Handmaiden," as the top-performing title. In the second half of the year, we have launched a diversified slate of AIGC titles, including multiple iQIYI-invested films, with an even broader pipeline across expanded categories next year. Currently, we have multiple AI-generated short-form dramas in development. NadoPro is our studio-grade production platform for creators. It runs on optimized third-party and in-house models, plus iQIYI's longstanding expertise in professional content. By replacing costly steps with lower compute and tool cost, it lowers barriers and speeds up professional content production. Our strategy is clear. Internally, NadoPro caps development and production costs. Externally, NadoPro explores new revenue streams and gradually converts our professional production capabilities into incremental revenue. NadoPro's edge isn't generating AI output.

It turns the key parts of long-form production, script writing, shot design, workflows, digital asset editing, and dubbing into platform features. It delivers an end-to-end workflow, connects talent with content assets, and makes progress repeatable and reusable. Nado Pro is evolving from a tool into a comprehensive creator ecosystem. It links content demand with creators and enables them to realize commercial returns through a flexible business model. This activates a flywheel. Commercial returns encourage more content supply, expanded supply fortifies the ecosystem. A stronger ecosystem scales both creators and works, powering a creation platform for iQIYI's decentralized content ecosystem. We believe these advantages will improve content production efficiency, lower unit costs, and increase both users and revenue. As we roll them out across all operations and scale, we expect their contributions to profit and cash flow to steadily materialize. Now, let's move on to the detailed performance in Q2.

Let's start with content. Our premium content is well-recognized by users and the industry. At the Magnolia Award this June, one of China's top TV honors, Bai Yulan Jiang, iQIYI titles and their creative teams won 14 of 23 awards, including 10 of 11 in the drama category, well ahead of peers. In Q2, our content performed well across formats. In long-form dramas, we continue to focus on female-centric stories with "Here" ranking among this year's top two titles by ad revenue. We also reinforced our lead in suspense-thriller innovation. The suspense comedy "Born with Luck" surpassed the 10,000 iQIYI popularity score and drove strong membership sign-ups. While in April, "Zuye Jiangzhi" from our iQIYI Suspense Theater earned strong reviews. Our original title, "Archives: The Nanyang Mystery" exceeded a 9,300 popularity index score, and the non-exclusive "The Epic of Minyu" topped 8,500.

In place-supported short-form dramas, typically 15 to 25 minutes per episode with flexible episode counts, we delivered exciting early results. Per Enlightent Data, our market share doubled from 25% in March to 50% in June, taking number one for the first time. The strong performance was supported by our original, "The Fireman: 10th Anniversary" which reached a peak daily market share above 60%. Short-form titles can offer structural advantages over long-form dramas, potentially reducing average per-minute costs by over 50% and shortening production to approval timelines by 30% to 50%. In micro dramas, we've released premier live-action titles like "Everything About Secretary Li", "Falling for You", and "Phoenix Blade," all resonated well with audiences. AIGC scaled quickly under a revenue-sharing model, accounting for over 50% of our micro portfolio and unique visitors in June, while AI-native micro animations expanded with strong sequential growth in views and time spent.

In films, we maintained a diversified slate of different audiences. Originals like "The Counterfeit", "The Twin Train" received positive feedback, while licensed "The Article Heath", "Packers 3", "Blades of the Gods", "Top Care 2" were also well-received on our platform. In variety shows, we launched seven originals in Q2 with our flagship from chess delivering sustained value. "Five Hearts" across our popularity index score of 9,000, reaching a new franchise high. For 10 years, Evergreen IP, "The Rap of China 2026" also stood out, surpassing a popularity index score of 8,800. In animation, we further solidified our original offers. The long-running "Against the Gods" with premiere in April, topped our animation popularity index chart and brought notable of platform users back to iQIYI. Together with, "The Great Ruler," we now have two long-running titles to keep users engaged year-round.