iQIYI (NASDAQ:IQ) reported second-quarter financial results on Tuesday. The transcript from the company's second-quarter earnings call has been provided below.

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Summary

iQIYI reported sequential growth in total revenues to RMB 6.3 billion with a significant reduction in non-GAAP operating loss, approaching breakeven.

The company is focusing on a strategic transformation towards a decentralized creator ecosystem and AI-driven content production, which is expected to improve content costs, revenue quality, profitability, and cash flow.

iQIYI maintains a strong market position in various content categories and has launched multiple AI-generated content projects, aiming for efficiency and cost-effectiveness.

International business showed strong growth, with membership revenues from regions outside mainland China up 40% year over year, particularly in Portuguese and Spanish-speaking regions.

iQIYI is leveraging AI to enhance content production and distribution, offering a comprehensive support system for creators, and plans to host a Creator Conference to discuss further opportunities.

Full Transcript

OPERATOR

Thank you for standing by and welcome to the iQIYI second quarter 2026 earnings conference call. All participants are in listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Ms. Chong Yu, IR Director of the Company. Please go ahead.

Chong Yu, Investor Relations Director

Thank you, operator. 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. Li Gong, our Founder, Director and CEO; Mr. Ying Tian, our CFO; Mr. Xiao Hui Wang, our CCO, Chief Content Officer; Mr. Yeo Chaoduan, Senior Vice President of our membership business; Mr. Xiang Kaiyang, 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 operations and highlights, followed by Ying, who will go through the financials. After the prepared remarks, the management team will participate in the Q and 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 statement, except as required under applicable law. I will now pass on to Mr. Gong. Please go ahead.

Yu Gong, Founder and CEO

Hello everyone. In the second quarter, we continued to reinforce our core business: high-quality, diversified content, powered by industry-leading performance. According to Enlightent data, we maintained the number one market share in each of the long-form drama, film, and children's content categories, and for short-form dramas we made a major breakthrough, reaching number one market share for the first time. Financial performance also improved quarter over quarter: total revenues grew sequentially and our non-GAAP operating loss narrowed substantially, approaching breakeven, while fully advancing our strategic transformation.

First, we are shifting from centralized media to a decentralized creator- and user-centric social media ecosystem. AI can dramatically lower the cost and barriers of 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 principles are 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 helps 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 of 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 cycles, lower production scale, and a good fit for AI-driven creation has seen especially strong growth across 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 end-to-end workflow. For example, we leveraged AI improvements to apply Season 2 Jedia to achieve a tenfold leap in rough-cutting efficiency compared to traditional methods.

Second, for content types well-suited to AIGC, 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 CG-heavy formats. We have launched multiple AI-generated internet feature films. A major milestone was the July premiere of Mystic Tale Chitan, the industry's first AIGC internet feature film to launch with an internet drama and a few distribution lessons.

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 a revenue-sharing model, with Trio Handmade as a top-performing title. In the second half of the year, we have launched a diversified slate of AIGC titles, including multiple IT-invested films, with an even broader pipeline across expanded categories next year.

Currently, we have multiple AI-generated short-form dramas in development. Nado Pro is a studio-grade production platform for creators. It runs on optimized third-party and in-house models, plus our long-standing expertise in professional content. By replacing costly steps with lower compute and tool costs, it lowers spirals and speeds up professional content production. Our strategy is clear: internally, Nado Pro can cut development and production costs; externally, Nado Pro explores new revenue streams and gradually converts our professional production capabilities into incremental revenue. Nado Pro isn't just generating AI output; it changes the key parts of long-form script writing, shot design, workflows, digital assets, editing, and dubbing into platform features. It delivers an end-to-end workflow, integrates talent with content assets, and makes progress repeatable and reusable. Nado Pro is evolving from a tool into a comprehensive creator ecosystem as it links content demand with creators and enables them to realize commercial returns through flexible business models.

This activates a flywheel: commercial returns encourage more content supply. Expanded supply fortifies the ecosystem. A stronger ecosystem scales both creators and works, powering the creation platform for its decentralized content ecosystem. We believe these advances 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 start to 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. As the Magnolia Awards are one of China's top TV honors, Bai Yu Lanjiang 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 ranking among this year's top two titles by ad revenue.

We also reinforced our lead in suspense. General Innovation, the suspense committee formed with luck, surpassed the 10,000 iQIYI popularity score and drove strong membership sign-ups. Well in several in Sapro Zoya, Jump Trip from oit, Suspense Delta earned strong reviews. Our original title Archives Mystery Lambudan exceeded 9,300 popularity index scores, and the non-inclusive The Epoch of Miuchi topped 8,500. In platform-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 Ferryman 10th Anniversary, which reached a peak daily market share of about 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 released and premiered live-action titles like All About Cycle, Career Lead, 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, while AI-native micro-animations expanded with strong sequential growth. In real time and time-split films, we maintained a diversified slate for different audiences. Originals like The Counterfeit Wei Chaotong and The Scene Trigger received positive feedback, while licensed theatrical hits package The Three Feature Blades of the Garden and Building Zoom Topia 2 were also well received on our platform.

In variety shows, we launched seven originals in Q2, with our flagship Fun Chess delivering sustained value. Five Hearts Wuhan crossed a 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 offerings. The Long Grinding Against the Gong Initiation, which premiered in April, topped all animation popularity index charts and brought notable off-platform users back to iQIYI.

Together with Gold Ruler That Whose I Am, we now have two long-running titles to keep users engaged year-round. Finally, in children's content, we reinforced our leadership with the return of our original IP sequel Dell Squad and the localized adaptation of the BBC classic Palativious. Next, let me show you our pipeline for the second half of the year. Our summer long-form drama features a diversified lineup, which includes multiple female-oriented titles like Road to Success, Key to the Phoenix Heart, Genius Girlfriends, Cantanyo, Spring of the Blade, You Chun, Abyss, Shen Yuan Wujian, and Invite Pride Shukong Qish, complemented by the military-themed Wind Blow Warriors and the major real estate drama Forging Justice Song Qi. For the remainder of the year, we will premiere The Great Long March, Small Town Remedy, Xia, Chengliangfeng, and River of No Return. As for short dramas, our upcoming releases include Death of Winter, The Five Worlds of Fido Case, The Sixth Group of Fido Case, Zhuang Liu Xi, and The Great Nobody 2 Dawn Die Hung Zhao. In films, our pipeline features original C films including Winter and Summer, Yilu, Talking Lan No Go to the Child, and Prohibition for Misfortune.

In the second half of the year, on the licensed front, our pipeline includes One Nation Point, Qiaoshilen, and The Fiorius this summer, with I Know Who You Are Dare You for the later half of the year. For internet feature films, which are limited to a maximum of three chapters, each at least 60 minutes long, our pipeline includes multiple AIGC titles based on the classic IP The Fireman in Huang Baidu. The first two chapters, A Butterfly Dream and The Dream of Celestial Madam, are set to launch this summer.

Additionally, audiences can also enjoy a strong lineup of live-action titles, including Modern Game and Speed and Battle this summer. Shifting to variety shows, we're deepening audience engagement with established IPs, including The Rapper of China 2026, The King of Shaanxi Comedy Season 3, Xi Ju, Zhirong Dankoji, and Her Prime 2 this summer, followed by The Blooming Journey Through Hanhua 3 and Wander Together to Egoshan Watching to Yi in the second half.

For animations, this year could be iQIYI's strongest animation summer. The slate may feature A Good Day to Ascend, Georgia Fishing, Raised by the Month, Finally Li Xinmou, Golden Cross, Tai Shen, Dou Gano, and To Be Winner Changiya Shok, alongside the AIGC titles The Legend of King Hong and The Legend of King. For children's content, our summer slate features a new season of the popular Pleasant Goat and Big Big Wolf Xiang Yang Is Villain, as well as original AIGC animations like Lala Beat.

Looking ahead to the second half of the year, we will roll out the original AIGC animation Wusheng Armor and Kamen and Burst Fruits Track Tested Travel Xiaotu Miao Control. Now, turning to membership business, revenue declined sequentially due to seasonality. We are strengthening the business with more refined operations. For example, targeted discounts for students and teachers drove a year-over-year increase of over 60% in quarterly subscribers within this cohort.

We also continue to enhance membership value with our Express packages. In Q2, we launched the Express packages across 16 drivers, driving a nearly 80% annual increase in total participants. In addition, we are expanding joint membership with frequently purchased, top-tier brands popular among young users to support membership growth and retention. Next, moving on to advertising business: for brand ads, revenue from drama-targeted ads delivered double-digit year-over-year growth.

Manufacturing, built-in personnel, and healthcare recorded double-digit year-over-year growth. We also deepened our use of AI in operations and now support customized AIGC for performance. As revenue returned to year-over-year growth, we continued to optimize advertiser mix. Revenue from small and mid-sized advertisers delivered strong year-over-year growth. Sector-wise, revenue from advertisers in AI applications, instant retail, retail, and e-commerce recorded strong year-over-year growth.

We further strengthened results with AI by upgrading our proprietary large models, improving targeting precision, and driving revenue. Moving on to our business performance in regions outside of mainland China. In Q2, this business sustained rapid growth. Membership revenues grew 40% year over year. Portuguese- and Spanish-speaking regions demonstrated robust growth; notably, membership revenue from Brazil and Mexico surged by over 215% and 150% year over year, respectively.

Our Arabic-speaking markets also show strong potential, with membership revenue increasing 85%. The global influence of C-drama continues to expand. In Q2, membership revenue from C-dramas grew over 40% year over year. Hit titles such as Fit, Choose You Jiang or Piancheng topped our international platform rankings across 14 regions in its first week and stayed in the top 10 of the free-dramas chart for 10 consecutive weeks. On the local production front, we are accelerating the pace.

Our first original Indonesian drama, The Other Sister, gained strong traction. Per Google Trends, it became the number one local internet drama in Indonesia in the first half of 2026. Micro-dramas were another major highlight, serving as the second-largest membership revenue contributor following long-form dramas in Q2. Membership revenue from this category grew over 300% year over year. This momentum was partly fueled by stronger original production.

Notably, originals rose to three of the top 10 contributors to membership revenue. AIGC was another key driver of our overseas micro-drama expansion. In Q2, we launched AI-generated titles in multiple languages, including English, Thai, and Korean. Our original titles delivered exceptional efficiency, recouping production costs within the same quarter and demonstrating stable profit potential. We are scaling supply through both original and external partnerships.

In May, we released our first original AI-generated micro-drama overseas, which quickly ranked in the top three for micro-drama revenue on our international platform. The title was produced by Nado Pro, which helped us establish full-flow AIGC know-how, laying a strong foundation for scale production. In parallel, we are proactively forging external partnerships to connect overseas script production and tool ecosystems, including Nado Pro, unlocking capacity and scaling AIGC supply.

Beyond content, we are driving growth with strong memberships. We have partnered with Vision Plus in Indonesia and will launch joint memberships with VEO in more markets in the second half. We are excited about the future potential of our overseas business. With that, I will hand it over to Ying Tian, our new CFO, to walk you through the next part.

OPERATOR

Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you're on a speakerphone, please pick up the handset to ask your question. Please ask questions in Chinese first and then translate the questions into English. Please ask one question each time and go back into the queue for more questions. Your first question comes from Xuqing Zhang with CICC.

Xuqing Zhang, Analyst at CICC

Thanks, management, for taking my question. I would like to ask: With AI technology and the market evolving rapidly, how will management see the business model developing in the future? And what are the company's key strategic and operational priorities going forward? Thank you.

Yu Gong, Founder and CEO

Thank you. We see iQIYI as the beneficiary of AI now and also in the long term. To capture this opportunity, we are making some strategic transformation for our business, mainly focusing on two main pillars: decentralization, which means transforming from a media-centric platform to a decentralized content ecosystem, and also all-in AI. We believe these two pillars will mutually reinforce each other and jointly drive a flywheel effect across the number of creators, the volume of content, the user base, and potentially revenue performance.

Premium content still remains at the core of our business. We believe AI will significantly lower production costs for premium content, shorten production cycles, and potentially enable production and visual effects that were previously difficult to achieve through live action. On decentralization, we're mostly focusing on our IQID, which is the ICE Creator Center. We have seen some positive initial progress, such as the number of creators and content uploads trending well.

We're seeing AI adoption progressing across our core content categories with initial breakthroughs achieved. For example, for the projects we have both in production and in the future, we expect a greater scale of content to be released next year. Over the long term, we believe decentralization and all-in AI will structurally improve our content cost, revenue quality, profitability, and cash flow.

OPERATOR

Your next question comes from Lin King Kong with Goldman Sachs.

Lin King Kong, Analyst at Goldman Sachs

Thank you, management, for taking my question. My question is about iQIYI's overall AIGC strategy and how's our plan in terms of each content category? Thank you.

Chong Yu, Investor Relations Director

Thanks, Lincoln. We'll invite our Chief Content Officer, Mr. Xiaokui, to take this question. Please go ahead.

Xiaokui, Chief Content Officer

First of all, we believe AI reduces the basic costs and barriers to production, but it doesn't lower the bar for creativity and judgment. We leverage AI to optimize the economics of content production while reinforcing our core moat, which is storytelling and aesthetic judgment, emotional expression, and also visual language. Our goal is to advance on both fronts: premium content quality and scaled content supply. Strategically, we will prioritize core long-form video while accommodating micro drama and micro animation.

We use a revenue-sharing model to improve capital turnover. We will share our thoughts by category based on the pace of AI adoption at scale. For micro dramas, we're seeing rapid adoption, with AIGC as the primary source of supply. We primarily use a revenue-sharing model and leverage algorithmic recommendations and decentralized operations to deliver a diversified, rapidly refreshed, and scaled content supply. For animations and micro animations, we believe these are AI-native content, so AIGC will serve as the primary driver.

For animations and children's content, these have mature CG industrialization and are a good fit in our view, and we're seeing rapid AI adoption. AI significantly boosts efficiency and our pipeline is expanding. For next year, we will release more AIGC titles to serve niche audiences and broaden stable supply. For short-form dramas and Internet feature films, these are medium in production complexity and volume. Compared to long-form content, these are lighter in complexity and in volume as well.

We're actively adopting AI, focusing on genres like fantasy, supernatural, and adventures to widen our genre mix. Some titles have already launched, and we will speed up scaled releases while balancing cost efficiency and content diversity. So far, we have released 16 AIGC short-form dramas under a revenue-sharing model, along with several Internet feature films. For long-form dramas and theatrical films, we believe they carry the highest emotional and artistic value, but these are relatively slower to adopt AI.

For these, we will focus on live action, put quality first, use AI to support our production, and use AI to reduce costs. Thank you.

OPERATOR

Your next question comes from Vicky Wei with Citi.

Vicky Wei, Analyst at Citi

In the context of the AI era and the ongoing shift towards decentralization, how do you view iQIYI's core competitiveness and what kind of value does it offer to content creators? Thank you.

Chong Yu, Investor Relations Director

We'll invite our CEO to take this question.

Yu Gong, Founder and CEO

We believe in the AI era video industry, competition centers on end-to-end capabilities, which is from concept to commercialization, and there are quite a few essentials that are required for this. For example, the ability to bring together professional talent, generate compelling ideas, run industrialized production, have a comprehensive understanding of content review and compliance, deliver effective content distribution, and drive diversified monetization.

These are the core moats iQIYI has built over the past decade. Our values to creators target three areas, with a slogan: help them to be seen, generate income, and gain recognition. First of all, iQIYI has a major share of the video entertainment audience, so creators have greater possibilities to be seen on the iQIYI platform. iQIYI also has deep expertise in long-form video production, and we have established a very mature, industrialized content production mechanism. In addition, we have massive viewership data, very rich IP and licensing resources, and very strong ecosystem support.

We have built a seven-pillar creator support system: the IQID, which is the iQIYI Creator Center; NAGO Pro, our professional production platform; physical creative centers; offline training programs; IT NADO and AIGC Venture Summit, helping creators with fund support; the Peter Pao and ICAI Theater for benchmark production; and, last but not least, a dedicated creators' customer service. On August 20th in Beijing, which is in two days, we will host the iQIYI Creator Conference, featuring in-depth discussions on content ecosystem development, frontier AI opportunities, and creator empowerment.

OPERATOR

Your next question comes from Ze Xu with Guangfa Securities.

Ze Xu, Analyst at GF Securities

Thanks for taking my question. I will translate my question in English. I want to know about the latest development in overseas business and how the operational experience from more mature markets like Thailand can be replicated in other markets. Thank you.

Chong Yu, Investor Relations Director

Thank you, Gigi. We'll invite Mr. [Speaker] to take this question.

OPERATOR

There are no further phone questions at this time. I'll now hand back to the company for closing remarks.

Chong Yu, Investor Relations Director

Thank you everyone for joining the call today. If you have further questions, do not hesitate to contact us. Thank you and see you next quarter.

OPERATOR

That does conclude our conference for today. Thank you for participating. You may now disconnect. Thank you.

Disclaimer: This transcript is provided for informational purposes only. While we strive for accuracy, there may be errors or omissions in this automated transcription. For official company statements and financial information, please refer to the company's SEC filings and official press releases. Corporate participants' and analysts' statements reflect their views as of the date of this call and are subject to change without notice.