iQIYI (IQ.US) is facing a huge test.
Affected by the macroeconomic environment and external competition, $iQIYI(IQ.US)'s operating performance in the third quarter of 2024 came under pressure again.
In the third quarter of this year, iQiyi's total revenue was approximately 7.2 billion yuan (in RMB, same below), a year-on-year decrease of 10%; net profit attributable to the parent company was about 229 million yuan, a sharp year-on-year decline of approximately 52%.
After the earnings disclosure, iQiyi's stock price fell sharply, closing down 7.34% on November 21 (U.S. Eastern Time) at $2.02 per share. Year-to-date, iQiyi's stock price has been halved, with a cumulative decline of 58.61%.
Admittedly, iQiyi, facing both earnings and stock price pressure, is undergoing a severe test. However, Caijing Magazine found that iQiyi has not given up seeking breakthroughs. The company is actively exploring new content formats and business models, such as micro-dramas and more diversified paid membership services and advertising models.
01 Membership Revenue Declines, Advertising Business Weakens
According to the financial report, in the third quarter of this year, iQiyi's membership service revenue was 4.4 billion yuan, a year-on-year decrease of 13%; online advertising service revenue was 1.3 billion yuan, a year-on-year decrease of 20%; content distribution revenue was 814 million yuan, a year-on-year increase of 52%; other revenue was 728.8 million yuan, a year-on-year decrease of 8%.
For long-form video platforms, membership revenue has always been crucial, and the popularity of content is the key to users' willingness to pay. In the first quarter of 2023, driven by the blockbuster drama "The Knockout," iQiyi's membership service revenue hit a record high.
However, this year, due to the lack of support from hit dramas, iQiyi's membership revenue has continued to decline. At the same time, content homogenization is severe. Apart from "Strange Tales of Tang Dynasty: Journey to the West," dramas like "Ordinary Song," "Lone Battle in the Foggy City," and "Lone Boat" were simultaneously broadcast on other video platforms, failing to create an exclusive advantage.
In contrast, iQiyi's "archenemy" Tencent Video has produced one hit after another. Its exclusive dramas, such as "The Long Ballad Season 2," "Liu Zhou Ji," "The Story of Roses," and "Joy of Life Season 2," all ranked among the top dramas in terms of member viewership in the third quarter.
Industry insiders pointed out that membership service revenue is often positively correlated with the number of hit dramas on a platform. Additionally, against the backdrop of the rise of short-form videos and the explosion of micro-dramas, long-form video users have been diverted.
iQiyi's second-largest revenue source—online advertising service revenue—also declined significantly. iQiyi attributed this mainly to the decline in brand advertising, which partially offset the growth in performance-based advertising.
In fact, not just iQiyi, the entire long-form video industry is facing challenges of weak growth in advertising business.
According to a report released by QuestMobile, in the third quarter of this year, among the top 15 media platforms in terms of brand advertising spending, Taobao and Douyin each accounted for over 20%, followed by WeChat and Kuaishou. In contrast, Youku, iQiyi, Tencent Video, and Mango TV all had shares below 5%, ranking lower.
The report noted that the decline in advertising spending in the long-form video sector is mainly due to two factors. On one hand, advertisers are cautious in their spending decisions amid cost-cutting and efficiency improvements. On the other hand, short-form video platforms have taken a larger share of advertising budgets.
02 iQiyi Focuses on Micro-Dramas
Faced with declining performance, iQiyi has begun to enter the micro-drama market, treating it as part of its content supply alongside dramas and variety shows.
iQiyi CEO Gong Yu revealed during the earnings call that the iQiyi app will focus on long-form videos supplemented by free micro-dramas in terms of content supply. In terms of monetization, it will prioritize the membership model with advertising as a supplement. The revamped iQiyi Lite app will shift to primarily promoting free micro-drama content, with long-form videos as a supplement, and prioritize the advertising model with membership as a secondary option.
This means that the revamped iQiyi Lite app will resemble short-form video platforms in terms of product form and business model.
The "China Micro-Drama Industry Development White Paper (2024)" released by the China Netcasting Services Association estimates that China's micro-drama market size will reach 50.44 billion yuan in 2024, a year-on-year increase of 34.9%, and its market size is expected to surpass domestic box office revenue for the first time.
Some market observers believe that for iQiyi, long-form videos are the core of its content ecosystem, and adding micro-dramas as a key piece is a crucial step to adapt to changing user demands, potentially further expanding its commercial space.
In addition, in terms of membership, iQiyi is trying to boost membership revenue through more operational strategies. For example, on November 12, it launched the iQiyi Gold VIP Membership Family Card package. It is also enhancing member benefits to encourage both new and existing members to continue paying, such as organizing fan meetups, early screenings, and family day events to promote membership upgrades and increase loyalty.
China International Capital Corporation (CICC) pointed out that iQiyi's introduction of the Family Card reflects its emphasis on refined membership operations, which could convert some shared account commercial value and promote healthy growth in membership revenue. It recommends monitoring the effectiveness of refined membership operations in 2025.
Conclusion:
iQiyi's performance decline in the third quarter highlights the challenges faced by the long-form video industry, such as lack of content differentiation, declining membership service quality, and insufficient growth momentum in the advertising market. Under pressure, the stock price drop may reflect the market's cautious expectations for iQiyi's future development. Whether micro-dramas can become the key to reversing market expectations remains to be seen.
Author: Bottle
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