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iQIYI Announces Second Quarter 2019 Financial Results

BEIJING, Aug. 19, 2019 (GLOBE NEWSWIRE) -- iQIYI, Inc. (IQ) ("iQIYI" or the "Company"), an innovative market-leading online entertainment service in China, today announced its unaudited financial results for the second quarter ended June 30, 2019.

Second Quarter 2019 Highlights

  • Total revenues were RMB7.1 billion (US$1.0 billion1), representing a 15% increase from the same period in 2018.
  • Operating loss was RMB1.9 billion (US$272.6 million) and operating loss margin was 26%, compared to operating loss of RMB1.3 billion and operating loss margin of 22% in the same period in 2018.
  • Net loss attributable to iQIYI was RMB2.3 billion (US$339.0 million), compared to net loss attributable to iQIYI of RMB2.1 billion in the same period in 2018. Diluted net loss attributable to iQIYI per ADS was RMB3.22 (US$0.49).
  • The number of total subscribing members was 100.5 million as of June 30, 2019, 98.9% of whom were paying subscribing members. This compares to 67.1 million of total subscribing members as of June 30, 2018, up 50% year over year.

“We are pleased to report another solid quarter of performance highlighted by our total subscribing members surpassing 100 million, marking a historic milestone for the Company,” commented Dr. Yu Gong, Founder, Director and Chief Executive Officer of iQIYI. “We further solidified our market leadership position across various operating metrics, and strengthened our product matrix that generates strong synergies across our platform. We remain committed to our strategy of enhancing production capabilities of high quality original content and advancing our AI technology innovation in content production, distribution and monetization. With the fast development of China’s entertainment industry and the approaching 5G commercialization, we are confident in our growth prospects and look forward to capturing the enormous opportunities ahead to grow in tandem with our users, partners, and investors.

“We achieved continued revenue growth in the second quarter despite some recent challenges facing our industry,” commented Mr. Xiaodong Wang, Chief Financial Officer of iQIYI. “Our membership business generated solid growth with subscription revenues increasing 38% year-over-year, driven by our strong content slate during the quarter. As our IP-centered diversification strategy grows to scale, we are constantly expanding the scope of our value-added services and pursuing better monetization. We believe our long-term growth landscape remains intact, and we will continue to invest in our original content and technology which serve as the dual engines to drive our future growth.”

Footnote:
[1] This announcement contains translations of certain RMB amounts into U.S. dollars at specified rates solely for the convenience of the reader. Unless otherwise noted, all translations from RMB to U.S. dollars are made at a rate of RMB6.8650 to US$1.00, the effective noon buying rate as of June 28, 2019, in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York.

Second Quarter 2019 Financial Results

Total revenues reached RMB7.1 billion (US$1.0 billion), representing a 15% increase from the same period in 2018.

Membership services revenue was RMB3.4 billion (US$497.1 million), representing a 38% increase from the same period in 2018. The increase resulted from the solid growth in the number of subscribing members, driven by our premium content, especially our original hits, as well as various operational initiatives during the quarter.

Online advertising services revenue was RMB2.2 billion (US$320.6 million), down 16% year over year, mainly due to the challenging macroeconomic environment in China, the delay of certain content launches and slower-than-expected recovery of our in-feed advertising.

Content distribution revenue was RMB517.9 million (US$75.4 million), representing a 4% decrease from the same period in 2018 due to the delay of certain content launches during the quarter.

Other revenues were RMB979.2 million (US$142.6 million), representing an 82% increase from the same period in 2018. The increase was driven by strong performance across various vertical business lines, especially the robust growth of our game business after the acquisition of Skymoons.

Cost of revenues was RMB7.0 billion (US$1.0 billion), representing a 14% increase from the same period in 2018. The increase was primarily driven by higher content costs as well as other cost items. Content costs as a component of cost of revenues were RMB5.0 billion (US$731.9 million), representing a 7% increase from the same period in 2018.

Selling, general and administrative expenses were RMB1.3 billion (US$196.1 million), representing a 42% increase from the same period in 2018. This was primarily due to higher marketing spending on game business and increased share-based compensation expenses associated with the acquisition of Skymoons.

Research and development expenses were RMB654.6 million (US$95.4 million), representing a 48% increase from the same period in 2018, primarily due to the increase of personnel-related compensation expenses.

Operating loss was RMB1.9 billion (US$272.6 million), compared to operating loss of RMB1.3 billion in the same period in 2018. Operating loss margin was 26%, compared to operating loss margin of 22% in the same period in 2018.

Total other expense was RMB426.7 million (US$62.2 million), compared to total other expense of RMB768.3 million during the same period of 2018. The year-over-year variance was a combined result of less foreign exchange loss due to the fluctuation of exchange rate between Renminbi and the U.S. dollar, and increased interest expenses associated with our financing activities.

Loss before income taxes was RMB2.3 billion (US$334.8 million), compared to loss before income taxes of RMB2.1 billion in the same period in 2018.

Income tax expense was RMB5.8 million (US$0.8 million), compared to income tax expense of RMB4.9 million in the same period in 2018.

Net loss attributable to iQIYI was RMB2.3 billion (US$339.0 million), compared to net loss attributable to iQIYI of RMB2.1 billion in the same period in 2018. Diluted net loss attributable to iQIYI per ADS was RMB3.22 (US$0.49) for the second quarter of 2019.

As of June 30, 2019, the Company had cash, cash equivalents, restricted cash and short-term investments of RMB16.4 billion (US$2.4 billion).

Financial Guidance

For the third quarter of 2019, iQIYI expects total net revenues to be between RMB7.21 billion (US$1.03 billion2) and RMB7.63 billion (US$1.09 billion), representing a 4% to 10% increase from the same period in 2018. This forecast reflects iQIYI's current and preliminary view, which is subject to substantial uncertainty.

Footnote:
[2] The translations from RMB to U.S. dollars for the expected revenues in the third quarter of 2019 are made at a rate of RMB7.0 to US$1.0, the rounded noon buying rate as of August 8, 2019, in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York. We make no representation that any Renminbi or U.S. dollar amounts could have been, or could be, converted into U.S. dollars or Renminbi, as the case may be, at this rate, or any particular rate, or at all.

Conference Call Information

iQIYI's management will hold an earnings conference call at 8:00 PM on August 19, 2019, U.S. Eastern Time (8:00 AM on August 20, 2019, Beijing Time). Dial-in details for the earnings conference call are as follows:

International   +65 67135090  
China   4006 208038  
US   +1 845 675 0437  
UK   +44 2036 214779  
Hong Kong   +852 3018 6771  
Passcode:   4885756  

A telephone replay of the call will be available two hours after the conclusion of the conference call through August 27, 2019.

Dial-in numbers for the replay are as follows:

International Dial-in   +61 2 8199 0299  
Passcode:   4885756  

A live and archived webcast of this conference call will be available at http://ir.iqiyi.com.

About iQIYI, Inc.

iQIYI, Inc. is an innovative market-leading online entertainment service in China. Its corporate DNA combines creative talent with technology, fostering an environment for continuous innovation and the production of blockbuster content. iQIYI’s platform features highly popular original content, as well as a comprehensive library of other professionally-produced content, partner-generated content and user-generated content. The Company distinguishes itself in the online entertainment industry by its leading technology platform powered by advanced AI, big data analytics and other core proprietary technologies. iQIYI attracts a massive user base with tremendous user engagement, and has developed a diversified monetization model including membership services, online advertising services, content distribution, online games, live broadcasting, IP licensing, online literature, talent agency and e-commerce etc.

Safe Harbor Statement

This announcement contains forward-looking statements. These statements are made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates," "confident" and similar statements. Among other things, the Financial Guidance and quotations from management in this announcement, as well as iQIYI's strategic and operational plans, contain forward-looking statements. iQIYI may also make written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission, in its annual report to shareholders, in press releases and other written materials and in oral statements made by its officers, directors or employees to third parties. Statements that are not historical facts, including but not limited to statements about iQIYI's beliefs and expectations, are forward-looking statements. Forward-looking statements involve inherent risks and uncertainties. A number of factors could cause actual results to differ materially from those contained in any forward-looking statement, including but not limited to the following: iQIYI's  strategies; iQIYI's future business development, financial condition and results of operations; iQIYI's ability to retain and increase the number of users, members and advertising customers, and expand its service offerings; competition in the online entertainment industry; changes in iQIYI's revenues, costs or expenditures; Chinese governmental policies and regulations relating to the online entertainment industry, general economic and business conditions globally and in China and assumptions underlying or related to any of the foregoing. Further information regarding these and other risks is included in the Company’s filings with the Securities and Exchange Commission. All information provided in this press release and in the attachments is as of the date of the press release, and iQIYI undertakes no duty to update such information, except as required under applicable law.

For more information, please contact:

Investor Relations
iQIYI, Inc.
+ 86 10 8264 6585
ir@qiyi.com


iQIYI, INC.

Condensed Consolidated Statements of Income

 (In RMB thousands, except for number of shares and per share data)

  Three Months Ended   Six Months Ended
  June 30,   March 31,   June 30,   June 30,   June 30,
  2018    2019    2019    2018    2019 
  RMB   RMB   RMB   RMB   RMB
  (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)   (Unaudited)
 Revenues:                  
Membership services 2,474,474     3,445,343     3,412,349     4,569,459     6,857,692  
Online advertising services 2,617,507     2,119,433     2,200,682     4,728,177     4,320,115  
Content distribution 539,359     467,861     517,939     806,029     985,800  
Others 538,891     957,282     979,211     943,871     1,936,493  
 Total revenues  6,170,231     6,989,919      7,110,181       11,047,536       14,100,100  
                   
 Operating costs and expenses:                  
Cost of revenues (6,106,729 )   (7,277,196 )   (6,980,957 )   (10,954,948 )   (14,258,153 )
Selling, general and administrative (949,934 )   (1,140,611 )   (1,346,324 )   (1,654,171 )   (2,486,935 )
Research and development (441,482 )   (598,072 )   (654,601 )   (828,811 )   (1,252,673 )
 Total operating costs and expenses (7,498,145 )   (9,015,879 )   (8,981,882 )   (13,437,930 )   (17,997,761 )
 Operating loss (1,327,914 )   (2,025,960 )   (1,871,701 )   (2,390,394 )   (3,897,661 )
                   
 Other expense                  
Interest income 25,615     65,097     130,721     30,341     195,818  
Interest expenses (9,562 )   (135,247 )   (247,762 )   (17,887 )   (383,009 )
Foreign exchange (loss)/gain, net (777,968 )   328,035     (306,117 )   (303,813 )   21,918  
Loss from equity method investments (896 )   (34,535 )   (38,112 )   (995 )   (72,647 )
Other (expense)/income, net (5,468 )   (12,224 )   34,593     190,312     22,369  
 Total other (expense)/income, net (768,279 )   211,126     (426,677 )   (102,042 )   (215,551 )
                   
 Loss before income taxes (2,096,193 )   (1,814,834 )   (2,298,378 )   (2,492,436 )   (4,113,212 )
Income tax expense (4,858 )   (7,443 )   (5,776 )   (5,367 )   (13,219 )
                   
 Net loss (2,101,051 )   (1,822,277 )   (2,304,154 )   (2,497,803 )   (4,126,431 )
Net (loss)/income attributable to noncontrolling interests (4,120 )   (8,301 )   23,291     (5,179 )   14,990  
 Net loss attributable to iQIYI, Inc. (2,096,931 )   (1,813,976 )   (2,327,445 )   (2,492,624 )   (4,141,421 )
Accretion of redeemable convertible preferred shares (9,627 )   -     -     (298,990 )   -  
 Net loss attributable to ordinary shareholders    (2,106,558 )      (1,813,976 )      (2,327,445 )      (2,791,614 )      (4,141,421 )
                   
 Net loss per share for Class A and Class B ordinary shares:                  
Basic (0.43 )   (0.36 )   (0.46 )   (1.05 )   (0.81 )
Diluted (0.43 )   (0.36 )   (0.46 )   (1.05 )   (0.81 )
                   
 Net loss per ADS (1 ADS equals 7 Class A ordinary shares):                  
Basic (3.01 )   (2.52 )   (3.22 )   (7.35 )   (5.67 )
Diluted (3.01 )   (2.52 )   (3.22 )   (7.35 )   (5.67 )
                   
Weighted average number of Class A and Class B ordinary shares used in net loss per share computation:                  
Basic 4,931,100,562     5,083,030,810     5,102,652,726     2,651,903,354     5,092,895,972  
Diluted 4,931,100,562     5,083,030,810     5,102,652,726     2,651,903,354     5,092,895,972  


iQIYI, INC.

Condensed Consolidated Balance Sheets

(In RMB thousands)

   
    December 31,   June 30,
    2018    2019 
    RMB   RMB
        (Unaudited)
ASSETS        
  Current assets:        
Cash and cash equivalents    4,586,405     5,427,362  
Restricted cash   2,174,042     2,196,656  
Short-term investments   6,061,832     8,817,980  
Accounts receivable     2,889,234      3,046,343  
Prepayments and other assets     2,696,381      3,864,062  
Amounts due from related parties     281,710      312,232  
Licensed copyrights, net     1,163,839      1,176,403  
  Total current assets      19,853,443      24,841,038  
         
  Non-current assets:        
 Fixed assets, net   1,618,147     1,811,313  
 Long-term investments   2,572,040     2,553,252  
 Deferred tax assets, net   23,873     23,873  
 Licensed copyrights, net   6,640,910     6,043,029  
 Intangible assets, net   1,678,193     1,445,553  
 Produced content, net   3,736,063     4,483,123  
 Prepayments and other assets   4,695,883     4,467,330  
Operating lease assets   -     532,645  
 Goodwill   3,888,346     3,888,346  
Amounts due from related parties   52,800     154,600  
  Total non-current assets   24,906,255      25,403,064  
         
Total assets   44,759,698     50,244,102  
         
LIABILITIES AND SHAREHOLDERS’ EQUITY        
Current liabilities:        
Accounts and notes payable   10,162,366     9,583,950  
Amounts due to related parties   692,390     1,204,727  
Customer advances and deferred revenue   2,195,283     2,295,522  
Short-term loans   3,046,449     4,017,485  
Long-term loans, current portion   83,720     353,386  
Operating lease liabilities, current portion   -     137,926  
Accrued expenses and other liabilities   3,632,148     3,850,910  
  Total current liabilities   19,812,356     21,443,906  
Non-current liabilities:        
Long-term loans   644,169     384,462  
Convertible senior notes   4,712,284     11,918,836  
Deferred tax liabilities   96,405     69,964  
Amounts due to related parties   1,281,370     1,142,912  
Operating lease liabilities   -     209,745  
Other non-current liabilities   57,551     56,022  
  Total non-current liabilities   6,791,779     13,781,941  
         
Total liabilities   26,604,135     35,225,847  
         
Shareholders’ equity:        
         
Ordinary shares   321     323  
Additional paid-in capital   39,666,150     40,696,243  
Accumulated deficit   (23,509,486 )   (27,650,907 )
Accumulated other comprehensive income   1,879,946     1,837,517  
Non-controlling interests   118,632     135,079  
Total shareholders’ equity   18,155,563     15,018,255  
         
Total liabilities and shareholders’ equity   44,759,698     50,244,102