On August 22, iqiyi (IQ.US) released its Q2 2024 financial report, presenting a solid performance to the market.

During the period, total revenue reached 7.4 billion yuan, the Non-GAAP operating profit for the reporting period was 0.5 billion yuan, operating profit margin was 7%, and positive operating cash flow was achieved for nine consecutive quarters. As of the second quarter of 2024, iqiyi has achieved ten consecutive quarters of operating profits.

With the return of content as king in the long video industry, iqiyi has solidified its leading position with excellent content capabilities and actively explores a positive cycle of content and business. During the period, the company's self-produced drama 'My Altai' once again proved that iqiyi is getting closer to achieving a win-win situation between content quality and business revenue.

A deep analysis of iqiyi's ten consecutive quarters of maintaining operating profits reveals a profound logic behind it. The core reason lies in its continuous output of high-quality content, forming a rich IP matrix. With the 'one fish, multiple meals' business model, IP full-format development is achieved. With advanced technology aiding in improving quality and efficiency, its profitability is expected to continue to increase.

High-quality content launching one after another contributes to the unlocking of IP potential.

In the mainstream development of long video platforms, the continuous affirmation of 'content is king' is evident. Over the past few years, iqiyi has proven its scalable effect of high-quality content creation through a series of hits like 'Racing' and 'Among People'.

It is worth mentioning that high-quality content from iqiyi has also become one of the main sources of content for television stations. In the first half of 2024, iqiyi has released about 50 series to China Central Broadcasting and Television General Station, satellite TV, and local TV stations, further strengthening the long-tail effect of high-quality content.

In Q2 2024, iqiyi has launched multiple high-quality content in the drama, variety show, and animation fields, continuing the trend of high-quality growth. In terms of content structure, reality-themed "My Altai", mystery-themed "Invisible Boy", animation "Thoroughly Modern" Culture, and in the field of variety shows, the second season of "Farming Together" and other "Nth Generation" have effectively covered various audiences across the internet.

According to the Zhitong Finance and Economics APP, the ultimate competition of long video platforms is the stability of the supply of high-quality content, as well as the win-win situation of content quality and commercial revenue.

Iqiyi's financial report interprets the value of this persistence. In the second quarter, iqiyi's membership service revenue was 4.5 billion yuan, and online advertising service revenue was 1.5 billion yuan. In the quarter, iqiyi's monthly average single membership revenue (ARM) showed a steady year-on-year growth. In the background of relatively stable membership scale, the increase in ARM means that the value perception and willingness to pay of the members are improving. In Q2, iqiyi launched 10 series of additional episodes and set a new quarterly high for cash purchases.

In July, during the summer vacation season, iqiyi successfully held the first "717 Member Festival", providing users with valuable subscription discounts, and collaborating with more than 40 artists to carry out a 7-hour non-stop live broadcast, promoting over 130 works with a total online viewing of over 30 million times. The "717 Member Festival" not only provides high-value discounts and benefits for members, but also effectively enhances the brand influence of iqiyi.

Beyond the content itself, providing exclusive experiences for member users. This platform-driven innovation has also extended the development and consumption lifecycle of film and television IP, taking the industry chain partners "fly together".

After more than ten years of tempering, long videos have established a business model with "member subscriptions + advertising services" as the core. At the same time, the content system of long videos in refined output, blockbuster forging, and multi-type expression has also been solidly constructed.

iQiyi proposes a business model of "one fish, multiple meals" to achieve the full development of IP in all formats and empower the brand value of IP. Common IP derivatives include cross-media collaborations of dramas and movies, as well as merchandise and offline experiential activities. In Q2 of 2024, the company demonstrates its growth potential through the release of IP potential.

Specifically, the Wilderness Concert of "My Aletai" held by the company in July received widespread acclaim from users, sponsors, and local cultural tourists, effectively extending the vitality of the IP. "Fox Spirit Matchmaker: Moon Red Arc" achieved a record high in iQiyi's original drama IP licensing revenue.

As the second season of the "Tang Dynasty Ghost Chronicles" series, "Mysteries of Tang Dynasty: Journey West" not only became the 14th hit drama on iQiyi with over 10,000 views, but also showed remarkable long-tail effect and series development, driving the first season of "Mysteries of Tang Dynasty" to increase its total playtime and membership revenue by 6 times and 10 times, respectively. The diversified revenue and influence of the drama have expanded from online to offline entertainment, tourism, and consumer goods domains. The immersive theater of "Mysteries of Tang Dynasty: Journey West", a trendsetting drama, has been launched in Beijing, Shenzhen, and Xi'an.

Obviously, the influence of dramas is expanding from online to offline entertainment, tourism, and consumer goods domains.

Gong Yu, the founder and CEO of iQiyi, said, "Content IP is the core asset of iQiyi, so promoting various forms of content IP, including monetizing offline business, is a long-term and continuous important task for the company, as well as a key factor in increasing the company's long-term value and competitiveness. We hope that the offline experiential business will become our second growth curve in the future."

The Zhitong Finance APP believes that iQiyi's ability to achieve multiple monetization of IP relies on the continuous improvement of its content value and the increasingly rich IP matrix it has formed. By empowering IP through offline business models and achieving stable and continuous monetization of IPs, iQiyi has not only opened up new growth curves, but also formed a positive cycle of content quality and commercial income.

AI lays a solid foundation for long-term development, while high-quality content accelerates the exploration of overseas markets.

iQiyi adheres to technology innovation as its driving force, with a scientific management process and an industrialized production system, which is also an important driver for the launch of its high-quality content.

In Q2 2024, iQiyi leverages the AI trend to empower AI productivity in multiple scenarios, further enhancing the quality and efficiency of AI applications. For example, the scope of AI assistance in project evaluation, creativity, marketing, and distribution is expanded, effectively improving content production and operational efficiency. For instance, AI can assist in revenue forecasting in the early stages of project initiation. At the same time, AI further empowers advertising creativity and content marketing. The innovative combination of virtual character images and brand advertising in the drama 'Fox Spirit Matchmaker: Yueran' effectively enhances advertising effectiveness. The AI multimodal model helps understand plot information and generate marketing points, effectively improving content marketing efficiency.

In addition, in the second quarter, iQiyi's virtual production application broke through the fantasy genre and was first applied to realistic drama series. The self-developed virtual pre-production product enables rapid design and visual presentation of the drama's scenes before actual shooting, and has been applied to multiple flagship projects, achieving significant efficiency improvement.

The self-produced content management platform covers all of iQiyi's drama series, movies, and animations, effectively assisting the management team and producers in data-driven decision-making. The film and television production management system provides frontline production tools and production management capabilities for on-set personnel, and has been applied in 67 drama series, with 21 of them launched in Q2, receiving positive feedback from the creative teams.

The long-term nature of the content industry determines that long-term thinking and forward planning are necessary. For a long time in the past, the construction of 'high-quality content + innovative technology' has been a strong moat for iQiyi. In the future, AI will be fully applied in pre-production shooting, content production, promotion and operation, and subsequent performance evaluation, helping to improve creative efficiency and quality, and enhance the user experience. iQiyi utilizes technology productivity, such as AI, to build an industrial production system to improve quality and efficiency, which may further boost the release of its premium content.

Furthermore, the abundant supply of premium content will further support iQiyi's expansion in the overseas market. In Q2, iQiyi's total overseas revenue and membership revenue maintained double-digit growth on a year-on-year and quarter-on-quarter basis, with overseas membership revenue of top mainland drama series growing by over 30% year-on-year. iQiyi's self-produced Thai local content 'Professional Substitute' ranks first in terms of viewership in the US, Canada, and the UK, while iQiyi's self-produced Chinese anime 'Cheng Hui Tizhong' has surpassed top Japanese anime in terms of viewership and revenue in multiple overseas regions.

In the future, as iQiyi continues to release high-quality content and accelerate the production of local self-produced content overseas, while leveraging AI to improve the production efficiency of localized self-produced content, and exploring diversified IP monetization models, its revenue sources will be further enriched.

Summary: High barriers to entry + low valuation highlight the cost performance ratio.

In the future, the development of long video platforms will return to content being king, meeting the viewing needs of different generations of users, and there will still be a stable base of subscription users.

Because long video platforms essentially have the highest threshold for entertainment content supply, and have formed a sufficiently 'displaced' competitive relationship with entertainment forms that have grown under other internet forms, we believe that its entry barriers and moats are relatively high. As long as the long video platforms continue to break through the ceiling of content creation, the current gap between domestic film and television content production standards and those of Europe/US/Japan/Korea is the long-term upward space for the entire industry.

However, the stability and sustained growth potential of the long video business model is not fully recognized at present, and the industry is still undervalued. But there is reason to believe that based on quality content + advanced technology, stability of the subscription model + growth of IP development model will strengthen the competitive barriers for IQIYI, bullish on its long-term investment value.