IQIYI, Inc. reported that Q3 revenue reached 7.396 billion yuan on Wednesday, up 6.98% from a year earlier and exceeding the agency's previous estimate of 7.242 billion yuan. The company's shares rose by more than 8.8% at one point in after-hours trading, and by more than 7% as of press time.

First, supervision does not affect the growth of members, and the income of members supports half of the sky.

1. The actual situation is different from what was expected.

Due to the tightening of regulatory policy this year, the content schedule has been delayed, which many people think will affect the company's user growth, but the fact is: Q3 subscription members increased by 31% year-on-year, with the number reaching 105.8 million; accordingly, member service revenue increased by 30% year-on-year to 3.7 billion yuan, accounting for more than half of the total revenue.

Moreover, the payment rate for platform subscription members is as high as 99.20%. This shows that the quality of iQIYI, Inc. 's content is worthy of recognition: Q3 platform launched the costume drama "Chen Xiyuan", the youth drama "my Mowgli Boy", and the variety show "China's new rap" and "the man who does housework" have always been hot.

In addition, regulatory policies are universal in the industry and everyone is affected. In the case that the overall content of the market is restricted, first, the content of the platform itself attracts users, and second, there is so much that can be seen in the market, and users have no other choice. Under the joint action, there is no market expected "regulatory tightening, content delay, user growth affected" situation.

2. Advertising is greatly influenced by macro factors.

In terms of advertising revenue, as expected, it decreased by 14% year-on-year, with revenue of 2.1 billion yuan. In the current macroeconomic environment, advertisers are reducing budgets one after another, superimposing content release delays, brand advertising has been greatly affected; in terms of effective advertising, with iQIYI, Inc. 's own technology and product quality, management is expected to be more optimistic next year.

3. Content distribution and other income are slightly weak.

The content distribution income is 680 million yuan and the other revenue is 932 million yuan. The year-on-year decline of the former is mainly due to the large base of last year, and the impact of content delay this year; the latter increased by 12.18% year-on-year, mainly due to the growth of the game business driven by the acquisition of Sky Mutual Entertainment last year, but the segment income decreased compared with the previous year, and the growth rate began to slow down.

Second, self-made content will become the focus, trying to build an industrial production model.

The cost of Q3 content rose 3 per cent year-on-year to 6.2 billion yuan, accounting for 84 per cent of revenue, much higher than the 70 per cent in the previous quarter. The reason given by management is the seasonal increase in costs, which is expected to be controlled at 70 per cent and 80 per cent for the whole year.

At present, iQIYI, Inc. 's content focuses on homemade content, and will increase investment in the future. Most importantly, the company has made it clear that the focus of homemade content is not on traffic, but on revenue. The platform uses studio and project system to create content, trying to find out a content production mode of Hollywood industrialization assembly line in China.

On the conference call, management said it wanted to keep content costs below 70 per cent of revenue next year. With the rising price of copyrighted content, the status of homemade content will become more and more critical.

Q3 has an overall operating loss of 2.8 billion yuan and a net loss of 3.7 billion yuan, an increase of 19.4% over the same period last year; however, the cash position is good, with cash and equivalents of 13.9 billion yuan.

Third, the content is so critical, what is the content of iQIYI, Inc.?

The content of the platform is related to the growth of users and the increase of revenue, and on the phone call, Gong Yu said that a price increase may be considered next year. If there is no good content, why should users stay in iQIYI, Inc.?

So it's time to take a look at more than half of Q4, as well as next year's Q1, iQIYI, Inc., what content is worth paying for.

1. The regulation is relaxed and the content is launched one after another.

At present, content regulation has been gradually liberalized, and the "sword dynasty" and "master" of iQIYI, Inc. 's reserves will probably meet with the audience in Q4 or early next year.

Among them, "Sword Dynasty" is produced by Feng Xiaogang, starring Li Xian and Li Yitong, while "Master" is a collection of youth idols such as Wang Yuan and Ouyang Nana.

Starting from Q4, the platform will successively launch four major broadcast themes: chivalrous season, New year season, blockbuster season and Love season, with high-quality content every quarter.

2. The new program is expected to become popular.

In terms of variety, we maintain more than two S-level head heat ensembles every quarter.

"Qifa Shuo" has been able to catch up, while the newly created "trend partner" has stars such as Wu Yifan, Yang Ying, Wang Yibo and other stars, taking the trend track as the content, in the form of stars going to Tokyo Kaichao clothing store, a number of links show the trend of the lead.

This variety show, which combines many factors such as flow and tide cards, is expected to become popular, and it comes with its own goods to solve the cash problem directly, which can be said to be a new attempt by iQIYI, Inc. in content creation.

3. Try sports events next year

For next year's Olympic Games and the European Cup, iQIYI, Inc. will also launch relevant sports and entertainment programs to broadcast professional sports events such as the European Cup.

The power of sports live broadcast, for users, more than a viewing channel, must be beneficial. But for the platform, sporting events are often hundreds of millions of dollars in copyright, which is really a lot of money. And look at the NBA of Tencent's video, 1.5 billion flowers make people feel cold.

Therefore, the price increase that Gong Yu is considering next year may be in the area of live sports. After all, if there is a good live broadcast of sports events, in the case of a good match between cost and user income, the platform can still attract a large number of users to move in, and the commercial cash means and space of sports events themselves are also relatively mature.

After all, as the largest platform for domestic users, watching Tencent video next door every day can attract a group of users by NBA alone. IQIYI, Inc. must also have ideas on live sports.

Conclusion: self-made content competition is the key, and the industrial production system will become a moat.

At present, the overall online video market has maintained growth, although short video has grown rapidly in the past two years, but iQIYI, Inc. 's long video market share is still increasing.

It can be judged that with the growth of copyright fees, self-made content will become the core of the competition, not to mention the realization of content, from the cost side, who has an integrated high-level content production system will be able to better control costs and reduce costs.

In terms of cash realization, the sustained growth of members is the most immediate, and the deepening development of IP will continue to strengthen in the future.

For Q4, the company takes a more conservative attitude and expects revenue to grow by-2 to 4 per cent year-on-year to 6.86 billion to 7.28 billion yuan. With the resumption of content scheduling at the end of the year and next year, the backlog of content in the past has been released, iQIYI, Inc. 's performance is expected to continue to grow.