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iQIYI Announces Third Quarter 2018 Financial Results

BEIJING, Oct. 30, 2018 (GLOBE NEWSWIRE) -- iQIYI, Inc. (NASDAQ: IQ) ("iQIYI" or the "Company"), an innovative market-leading online entertainment service in China, today announced its unaudited financial results for the third quarter ended September 30, 2018.

Third Quarter 2018 Highlights

  • Total revenues were RMB6.9 billion (US$1.0 billion1), representing a 48%2 increase from the same period in 2017.
  • Operating loss was RMB2.6 billion (US$377.3 million) and operating loss margin was 37%, compared to operating loss of RMB1.1 billion and operating loss margin of 23% in the same period in 2017.
  • Net loss attributable to iQIYI was RMB3.1 billion (US$457.3 million), compared to RMB1.1 billion in the same period in 2017. Diluted net loss attributable to iQIYI per ADS was RMB4.34 (US$0.63).
  • The number of total subscribing members was 80.7 million as of September 30, 2018, over 98% of whom were paying subscribing members. This compares to 42.7 million of total subscribing members as of September 30, 2017, up 89% year over year.

“We continued to deliver solid results during the third quarter backed by a set of strong user reach and engagement metrics that further validates our leading position in the industry,” commented Dr. Yu Gong, Founder and Chief Executive Officer of iQIYI. “Our library of premium content continued to excel, driving robust growth in subscriber number and membership revenue. Our record-breaking drama series Story of Yanxi Palace turned out to be a mega-hit for the entire summer, demonstrating our strong capabilities and potentials in producing high-quality premium content. Leveraging our extensive content offerings and expanding distribution network, we are also continuously improving and diversifying our business monetization. We remain dedicated to applying advanced technology to further enhance our platform and refine our ecosystem to generate long-term growth for shareholders.”  

“We had a good quarter with total revenues increasing 48% year-over-year to RMB6.9 billion,” commented Mr. Xiaodong Wang, Chief Financial Officer of iQIYI. “Membership services performed particularly well and became the biggest revenue contributor for the Company. While we faced some margin pressure during the quarter due to higher investment in content, we saw this as necessary and within our expectations as we are going through a transition period toward building an optimized and healthier content ecosystem which will position us well for the future.”

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Footnotes:
[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 RMB6.8680 to US$1.00, the effective noon buying rate as of September 28, 2018, in The City of New York for cable transfers of RMB as certified for customs purposes by the Federal Reserve Bank of New York.

[2] Starting from January 1, 2018, iQIYI adopted the new revenue accounting standard (ASC 606), which reclassifies value added tax from cost of revenues to net against revenues. To increase comparability of operating results and help investors better understand our business performance and operating trends, 2017 net revenues have been used to calculate all percentage changes in revenues and operating loss margins. 2017 net revenues are defined as gross revenues under legacy GAAP after the deduction of value added-taxes, which is presented on the same basis as 2018 and going forward.

Third Quarter 2018 Financial Results

Total revenues reached RMB6.9 billion (US$1.0 billion), representing a 48% increase from the same period in 2017.

Membership services revenue was RMB2.9 billion (US$415.3 million), representing a 78% increase from the same period in 2017. The increase was primarily attributable to the robust growth in the number of subscribing members, driven by our premium content, especially our self-produced blockbuster titles, as well as various operational initiatives during the quarter.

Online advertising services revenue was RMB2.4 billion (US$348.9 million), representing a 4% decrease from the same period in 2017. The decrease was primarily due to the impact of FIFA World Cup and recent regulation headwinds, which resulted in diverted or tightened advertiser budget.

Content distribution revenue was RMB834.6 million (US$121.5 million), representing a 220% increase from the same period in 2017. The significant increase was primarily attributable to a number of premium content titles that we distributed during the quarter.

Other revenues were RMB831.1 million (US$121.0 million), representing a 157% increase from the same period in 2017. The increase was driven by strong performance across various vertical business lines, and in particular, the consolidation of Skymoons, a mobile game company we acquired in mid-July 2018.

Cost of revenues was RMB7.7 billion (US$1.1 billion), representing a 66% increase from RMB4.6 billion, which was the cost of revenues after deducting the value added tax in the same period in 2017. The increase was primarily driven by content costs due to higher amortization of licensed copyrights and more self-produced content as we continue to invest in building our comprehensive and diversified content library. Content costs as a component of cost of revenues were RMB6.0 billion (US$875.5 million), representing a 66% increase from the same period in 2017.

Selling, general and administrative expenses were RMB1.3 billion (US$188.1 million), representing a 66% increase from the same period in 2017. This was primarily due to increased marketing spending in channel coverage and content related promotion, as well as higher share-based compensation expenses mainly arising from the acquisition of Skymoons.

Research and development expenses were RMB558.4 million (US$81.3 million), representing a 63% increase from the same period in 2017, primarily due to the increase of personnel-related compensation expenses.

Operating loss was RMB2.6 billion (US$377.3 million), compared to operating loss of RMB1.1 billion in the same period in 2017. Operating loss margin was 37%, compared to operating loss margin of 23% in the same period in 2017.

Total other expense was RMB539.4 million (US$78.5 million), compared to total other income of RMB15.6 million during the same period of 2017. In the third quarter of 2018, we recognized RMB593.1 million (US$86.4 million) of foreign exchange loss arising from the depreciation of the Renminbi against the U.S. dollar.

Loss before income taxes was RMB3.1 billion (US$455.8 million), compared to RMB1.1 billion in the same period in 2017.

Income tax benefit was RMB6.1 million (US$0.9 million), compared to income tax expense of RMB0.8 million in the same period in 2017.

Net loss attributable to iQIYI was RMB3.1 billion (US$457.3 million), compared to RMB1.1 billion in the same period in 2017. Diluted net loss attributable to iQIYI per ADS was RMB4.34 (US$0.63) for the third quarter of 2018.

As of September 30, 2018, the Company had cash, cash equivalents and short-term investments of RMB9.7 billion (US$1.4 billion).

Financial Guidance

For the fourth quarter of 2018, iQIYI expects total net revenues to be between RMB6.48 billion (US$943.5 million) and RMB6.75 billion (US$982.8 million), representing a 43% to 49% increase from the same period in 2017. This forecast reflects iQIYI's current and preliminary view, which is subject to substantial uncertainty.

Conference Call Information

iQIYI's management will hold an earnings conference call at 8:00 PM on October 30, 2018, U.S. Eastern Time (8:00 AM on October 31, 2018, Beijing/Hong Kong 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:  5687735

A telephone replay of the call will be available two hours after the conclusion of the conference call through November 7, 2018.

Dial-in numbers for the replay are as follows: 
 
International Dial-in  +61 2 8199 0299 
Passcode:  5687735

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, live broadcasting, online games, IP licensing, online literature 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  
        September 30,   June 30,   September 30,  
        2017    2018    2018   
        RMB   RMB   RMB  
        (Unaudited)   (Unaudited)   (Unaudited)  
 Revenues:                  
Membership services        1,696,697      2,474,474      2,852,329    
Online advertising services        2,634,187     2,617,507      2,396,247    
Content distribution        276,052     539,359      834,576    
Others        343,647      538,891      831,106    
 Total revenues        4,950,583      6,170,231      6,914,258    
                   
 Operating costs and expenses:                  
Cost of revenues       (4,897,843 )   (6,106,729 )   (7,655,102 )  
Selling, general and administrative       (777,038 )   (949,934 )   (1,292,037 )  
Research and development       (342,328 )   (441,482 )   (558,373 )  
 Total operating costs and expenses       (6,017,209 )   (7,498,145 )   (9,505,512 )  
 Operating loss       (1,066,626 )   (1,327,914 )   (2,591,254 )  
                   
 Other expense                  
Interest income       21,053     25,615     65,603    
Interest expenses       (83,539 )   (9,562 )   (15,586 )  
Foreign exchange gain/(loss), net       110,524     (777,968 )   (593,147 )  
(Loss)/income from equity method investments       (80 )   (896 )   46    
Other income/(expense), net       (32,359 )   (5,468 )   3,683     
 Total other income /(expense), net       15,599     (768,279 )   (539,401 )  
                   
 Loss before income taxes       (1,051,027 )   (2,096,193 )   (3,130,655 )  
                   
Income tax (expense)/benefit       (786 )   (4,858 )   6,058    
                   
 Net loss       (1,051,813 )   (2,101,051 )   (3,124,597 )  
 Less: Net (loss)/income attributable to noncontrolling interests          -      (4,120 )   15,836    
 Net loss attributable to iQIYI, Inc.       (1,051,813 )   (2,096,931 )   (3,140,433 )  
Accretion of redeemable convertible preferred shares       (10,652,232 )   (9,627 )      
 
 Net loss attributable to ordinary shareholders          (11,704,045 )      (2,106,558 )      (3,140,433 )  
                   
 Net loss per share for Class A and Class B ordinary shares:                  
 Basic       (34.17 )   (0.43 )   (0.62 )  
 Diluted       (34.17 )   (0.43 )   (0.62 )  
                   
 Net loss per ADS (1 ADS equals 7 Class A ordinary shares):                  
 Basic       -     (3.01 )   (4.34 )  
 Diluted       -     (3.01 )   (4.34 )  
                   
Weighted average number of Class A and Class B ordinary shares used in net loss per share computation:                  
 Basic        342,548,237      4,931,100,562      5,058,650,574    
 Diluted        342,548,237      4,931,100,562      5,058,650,574    
                   

 

   
iQIYI, INC.

Condensed Consolidated Balance Sheets

(In RMB thousands, except for number of shares and per share data)
   
    December 31,   September 30,
    2017    2018 
    RMB   RMB
    (Audited)   (Unaudited)
ASSETS        
  Current assets:        
Cash and cash equivalents   733,010        5,831,440  
Short-term investments   779,916       3,844,249  
Accounts receivable   2,235,384        3,164,612  
Prepayments and other assets   1,123,372        3,076,183  
Amounts due from related parties   9,979        66,131  
Licensed copyrights, net   818,867        1,051,997  
  Total current assets   5,700,528        17,034,612  
         
  Non-current assets:        
 Fixed assets, net   1,248,968        1,475,642  
 Long-term investments   567,887        2,306,070  
 Deferred tax assets, net   11,380        11,380  
 Licensed copyrights, net   4,558,083        6,715,958  
 Intangible assets, net   428,005       1,651,881  
 Produced content, net   1,564,279        4,070,153  
 Prepayments and other assets   2,845,662        4,062,738  
 Goodwill   3,276,107        3,888,346  
  Total non-current assets   14,500,371        24,182,168  
         
Total assets   20,200,899     41,216,780  
         
LIABILITIES, MEZZANINE EQUITY AND SHAREHOLDERS’ DEFICIT        
Current liabilities:        
Accounts payable   7,041,304        10,422,892  
Amounts due to related parties   130,099        492,543  
Customer advances and deferred revenue   1,633,649        2,356,275  
Short-term loans   299,374       1,172,553  
Long-term loans, current portion   10,000        10,000  
Accrued expenses and other liabilities   2,511,186        3,490,059  
  Total current liabilities   11,625,612     17,944,322  
Non-current liabilities:        
Long-term loans   284,000        274,000  
Deferred tax liabilities   2,255       117,225  
Amounts due to related parties   -       1,316,531  
Other non-current liabilities   6,432       66,929  
  Total non-current liabilities   292,687      1,774,685  
         
Total liabilities   11,918,299     19,719,007  
         
Mezzanine equity:        
Redeemable convertible preferred shares   22,601,664       -  
         
Shareholders’ (deficit)/equity:        
         
Ordinary shares   23     320  
Additional paid-in capital   600,834      39,517,690  
Accumulated deficit   (15,016,867 )    (19,981,862 )
Accumulated other comprehensive income   93,126        1,880,892  
Non-controlling interests   3,820     80,733  
Total iQIYI, Inc. shareholders’ (deficit)/equity   (14,319,064 )   21,497,773  
         
Total liabilities, mezzanine equity and shareholders’ (deficit)/equity   20,200,899     41,216,780  

iQIYI, Inc.

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