iQIYI Q4 2023 Earnings Call Transcript

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Provided by Quartr
February 28, 2024

There are 4 speakers on the call.

Operator

Good day, and welcome to the eQuikuy 4th Quarter and Fiscal Year 2023 Earnings Conference Call. All participants are in a listen only mode. Please note this event is being recorded. I would now like to turn the conference over to Ms. Chen Yu, IR Director.

Operator

Ms. Yu, the floor is yours, ma'am.

Speaker 1

Thank you, operator. Hello, everyone, and thank you for joining ITE's Q4 fiscal year 2023 earnings conference call. The company's results were released earlier today and available on the company's Investor Relations website at ir.ite.com. On the call today are Mr. Yu Gong, our Founder, Director and CEO Mr.

Speaker 1

Jun Wang, our CFO Mr. Xiaohui Wang, our CCO, Chief Content Officer Mr. Wenfeng Liu, our CTO Chief Technology Officer Mr. You caoduan, Senior Vice President of our Membership Business and Mr. Xiang Hai Yang, Senior Vice President of Movies and Overseas Business.

Speaker 1

Mr. Gong will give a brief overview of the company's business operation and highlights, followed by Jun, 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.

Speaker 1

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. ICE does not undertake any obligation to update any forward looking statement, except as required under applicable law. I will now pass the floor to Mr.

Speaker 1

Gong. Please go ahead.

Speaker 2

Hello, everyone. Thank you for joining us today. After an iconic turnaround in 2022, we continued our success in 2023, delivering the best performing year in the company's history by focusing on high quality growth. Both total revenues and non GAAP operating profit in 2023 increased double digit year over year and reached the historical high despite macro headwinds. More importantly, our growth in profit substantially surpassed that of revenues.

Speaker 2

This benefited the resilience of our business and our operational excellence. Let's take a closer look at the key metrics in 2023. Total revenue reached RMB31.9 billion, up 10% annually. Non GAAP operating profit reached over RMB3.6 billion, up 68% annually. And the non GAAP net profit exceeded RMB2.8 billion, up 171% annually.

Speaker 2

We generated a sizable total free cash flow of RMB3.3 billion in 2023, which improved our liquidity position, allowing us to make investments to drive future growth. All 4 above mentioned key metrics is record season high. It has become very clear that the company was following the track costs, offering a sustainable value growth for our stakeholders. Our exceptional financial results mirror our solid leadership in China's long form video industry. Our capacity for consumer engagement, viewership, mic shell, creative content production and technology innovation is second to none.

Speaker 2

Indeed, in consumer space, iQIYI stood out as a signature brand for providing top tier content. This was supported by viewership market data as well. According to Enlightened, we were ranked number 1 in drama viewership shell for 3 consecutive years. Notably, in 2023, we broadcasted 7 out of the 10 most viewed new dramas in the market. In addition to drama categories, we also dominated the online movie streaming segment with total viewership of 47%.

Speaker 2

Our market share leadership is deeply rooted in our unique capacity to produce original premium content. In 2023, iTEA originals accounted for over 65% of our key dramas' release, an annual record in our history. The original production capability not only guarantees us a steady inclusive supply of premium content. It also optimized our cost efficiency measured by operational metric known as the content related cost ratio. For drama category in 2023, this ratio improved 12 percentage points compared to 2022.

Speaker 2

The notable increase in efficiency translated directly into an increase in our profits. This is why our original capabilities is often recognized as the most important defensive barrier protecting our business. Meanwhile, we are also the leader driving technology innovation in long form video industry, industrializing the content production process and upgrading users' entertainment experience. For example, we developed iQIYI Content Production Management System, a highly efficient data driven system that we call it every crucial aspect of the Intel content production process. This system, together with generative AI, will meaningfully improve the HIF ratio while enhancing the production and operation efficiency.

Speaker 2

One more example of our technology leadership is 8 Max, a vendor we pioneered to deliver the ultimate cinematic like experiences on certified TV devices, covering more than 19,000 episodes of content across 157 TV models. Being a leader means constantly having our eyes on what's ahead of the past and thinking more about long term strategies rather than short term gains. As a management team, what really matters to us is to the potential returns of and tell content portfolio called here in the next several years and whether we can find a systematic approach to improve the ROI, either by a non logical advancement or by upgrading our content creation and management process. This perspective is a sharp departure from the public convention way of marrying our success by the number of key titles in the 1st 3 quarters, but we firmly believe that this perspective that upholds our long term leadership in the industry. Likewise, when we notice, ultimately, fluctuation in our subscriber numbers, it motivates us to boost the quality of our content and better our services to further engage and serve demographics like senior and young for us to improve long term retention and ARMs.

Speaker 2

We firmly believe that by addressing these fundamental long term challenges, we will be able to grow our value to user partners and investors in a sustainable manner. Looking forward to 20 24, we remain committed to our long term vision and our continuous focus on high quality growth. Our key priorities include stressing our current market position in core content categories, such as dramas and movies, improving our competencies in additional vertical genres such as kid cartoon and animation to enhance our capabilities in incremental areas, integrating cutting edge technologies to increase efficiency in content production and operational execution, enriching the user experience and the last but not least, exploring new markets and business opportunities. Now let me walk you through the details of our core business segment, starting with membership services. Our goal for the membership services business is to drive long term and sustainable membership revenue growth, and our focus extends beyond more than the quarter line net addition.

Speaker 2

Membership revenue is driven by 3 components, namely ARM, subscriber lifetime and subscriber base. Days and subscriber lifetime are our currently key focus in driving the long term economic value of membership services. In 2023, our membership services revenue exceeded RMB20 1,000,000,000, up 15% compared to 2022, driven by increase in both arm and subscriber base for Q4. Membership services revenue reached RMB4.8 billion, a slightly year over year. Arm maintained sequentially growth for 5 consecutive quarters and hit record high of RMB15.98 in Q4, up 17% annually and 3% sequentially.

Speaker 2

We believe our arm has ample room to grow in the future. 1st, the monthly membership fee for the industry is still very affordable compared with other affordable discretionary spending, such as movie tickets, coffee and a happy meal in quick service restaurants. With more premium content and a higher perceived value, users' willingness to pay will increase, allowing us to strategically scale back on discounts. Additionally, our innovative value added services, including express package, offline events and merchandise benefits show promising potential. In Q4, we launched the Express package for 6 drama series and saw a nearly 58% sequentially increase in the number of participants.

Speaker 2

Numbers within points for assets increased by 40% sequentially and cash purchase by numbers increased by 250% sequentially. Furthermore, our premium membership options are designed to entice users to higher tiers, tapping into greater monetization potential. For example, in Q4, events like the story of Kunming Palace, Nyingumu Fun Meeting and the 2023 ITE screen lines provided opportunities for longer long term members, and particularly those on the SMS plan to win event tickets soon inclusive to us. This has led to a shift with members upgrading from the Thunder Gold plan to the higher end planning and the estimates plan, which although more expensive, offer enhanced privilege. The average daily subscribers for Q4 was 100 point 3,000,000 with quarter end number higher than the daily average for the quarter.

Speaker 2

Our content continues to captivate subscribers. The subscriber mix has improved compared to the same period last year with substantial increase in the portion of annual plans. With strong content sales as late for 2024, we are confident that the number of dramas breaking the 10,000 popularity in Beckett's fall will surpass that of 2023. Premium content will naturally have to fuel our revenue growth. For 2024, we are taking a number of steps to strengthen our membership service business.

Speaker 2

1st, we will offer more differentiated products tailored to different user cohorts and provide value for many member experience and second, to optimize continuous gathering, market shift and operations to attract new members while increasing member retention. 3rd, improving the loyalty program to incentive wise users to choose long term premium and auto renewing plans. Such innovative will further boost member thickness and increase lifetime value. Moving on to content. Our consistent market leadership in core content and garage has solidified our reputation as diversified and high quality premium content powerhouse.

Speaker 2

Original programming remains the cornerstone of our content strategy and a key revenue driver. We have made remarkable advancement in the quality of our original production. In 2023, original content contributed 80% of the total revenue from key new dramas during the new release period. And that's not all. For 7 3 corners, over half of the revenue for new key dramas has come from original titles.

Speaker 2

Additionally, our content efficiency has largely improved. Our content related cost usual for dramas has improved for the 3rd consecutive years, decreasing by 12 percentage points since last year. That's a clear mark of progress in enhancing our cost structure and ultimately our bottom line. This is underpinned by our sophisticated content production and operation mechanism, which maximize the efficiency of our content investments while tackling the creation of innovative new titles. Our IT content production management system lies at the heart of the progress, empowering our teams to deliver software programming with remarkable efficiency and with effective resources, allocation and program management at every step.

Speaker 2

In addition, we give our creative talents enough flexibility grow to realize who should really who should I will know with their innovative ideas, the blend of robust content management and creative liberty allows us to consistently deliver high quality content so efficiently as a separate source for our content strategy. Accordingly, we have seen a consistent flow of premium content and yield ratio for or until our content portfolio improved. For example, in 2023, there were more titles with popularity index score of 9,000 and above, up 71% compared to 2021, reflecting a steady improvement in content quality. Additionally, over 17% of our key drama releases in 2023 match both of our expectation. Moving on to detailed content performance in Q4 2023.

Speaker 2

For dramas, Diary of Kunming Palace, Yan Ruma was a great success, have offers a fully in house produced original to reach popularity in bank store of 10,000, leading the industry viewership during this run. Another drama that also reached a popularity index of 10,000 was a journey to love Nianwe Shen, which set the record for the best opening day dealership in 2023. During the quarter, the new season of Mr. Seltzer returned the success of lonely warrior. Some of the consolidated leadership in the suspense channels, reaching a peak popularity index of more than 9,008 100, a record high for the Mr.

Speaker 2

Seltzer and the 24 episode short drama category. Other premium titles in Q4 included The Cell Less, Wu Xue Weiqian, Romance of the Fang, Kang Dung Gi and The Tiger Queen, Hei Yongshuo showcasing the diverse range of our drama portfolio. For movies, we maintained a leading viewership show in Q4 as per in Titan, Enlightened. Our movie channel featured 20 major releases, mainly talking about audience chats. Additionally, we are happy to see the recovery of the offline movie markets and the full of iQIYI's original theatrical films garnered post office revenue of over RMB100 1,000,000 in 2023.

Speaker 2

Our original strategy extends across all content areas. In animation, we largely scaled up original content in 2023, doubling the number of original titles launched and posting 90% increase in revenue compared to 2022. For kids cartoon, we now have 11 original IPs, 8 of which were multi season, notably. Princess Dora Mi Season 3 was named the best 3 year animated program at the 20 8th Asian Television Awards, which is one of the largest entertainment, content and broadcast awards in the Asia Pacific, demonstrating our expanded influence in overseas market. Next, let's take a look at our content pipeline in 2024.

Speaker 2

For dramas, our goal is to deliver diversified and high quality content on continuous basis. We are increasing investments in premium programs, while keeping the total number of titles relatively stable. Our content slate includes Asian custom dramas such as the highly anticipated for Spirit Matchmaker, in the season of Strange Tale of Tom Dynasty, Kang Youwei Fu Hua and others. In addition, Mr. Seltzer will debut new titles in 2024 with Gao Nong Wa, Fukogoren, Breaking the Shadows, In the reality genres, the premium of Always on the Go, Nanaim Weibo, known as top notch production and a strong audience, appear as its peak popularity score reached as high as 9,000 959, another example showcasing our strong content capability.

Speaker 2

Viewers can also look forward to the upcoming detail of the city, Tunuzuchang for lightning to long Shenzhen, adapted from the famous science fiction novel written by Liu Fuxin as well as in the name of the brother, Hari Indi Fusi. For movies, we expect several IT originals to hit the shelters in 2024. Our lineup includes the action comedy Raw and Raw Yixinjiang, which premiered in January and garnered a total box office of RMB236 1,000,000. Also, we anticipated to release the from the renowned novel written by Keiko Hagashino, for our online movie segment Cloud Cinema. We have introduced Action Master, our new brand that brings together the work line of action movies for our viewers.

Speaker 2

We have rebuilt 3 titles so far and earned high praise from audiences. Additionally, we look forward to the upcoming release of the Wild Blade of Strangers, Mulu Guangdong, the latest addition to our Action Master catalog. For variety shows in addition to new seasons of independent IPs like The Detectives Adventure 2024, long time and the rest of China 2024. We will continue to develop new programs, expanding different themes such as Player 1 in Wonderland, and others. For kids, cartoon and animation, we are actively expanding our production cover setting.

Speaker 2

We will introduce brand new IPs and new seasons of classic epis of original kid's cartoon. And for animation, we are planning to release around 20 seasons of original animation with enhanced quality and semantic diversity. To sum up our 2024 content strategy, we aim to reinforce our genre leadership and achieve breakthroughs in other genres. Our focus will remain on premium titles, increasing their supply, quality and monetization. We are also optimized our content gathering to cater to our diverse user base and their varied preferences.

Speaker 2

Moving on to the advertising business. In 2023, we recorded an annual increase of 17% in our advertising revenue, both brand and the performance ad posted healthy growth over the previous year. In Q4, advertising revenue increased by 6% annually to RMB 1 point 65,000,000,000 beating our expectation, thanks to our growing content influence among brand advertisers. Revenue from content targeted ads accounted for over 50% as advertisers flocked 2 top dramas and show like Sorry of Kunming Palace, A Journey to Love and We Never Stop. Broken down by factors, the annual growth in Q4 came mainly from the recovering of brands in industry, including food and beverage, communications and healthcare.

Speaker 2

Performance ads continued to show annual growth despite the high baseline in Q4 last year. We expanded our customer base to attract new advertising budgets such as new e commerce platforms and short form dramas. Our solid performance also capitalized on our technology upgrades as we made effective use of generative AI to improve and creation and ROI. Looking ahead to 2024, we remain culturally optimistic about the ad market, and we are closely monitoring the dynamics of macroeconomic and advertisers segment. With that said, our performance in 2023 once again proved that we remained as a go to platform for advertisers, thanks to our unmatched content quality, extensive user profile and strong sales ability.

Speaker 2

For brand ads, in 2024, we will 10 key clients in food and beverage, cosmetics and politics and communications, we are striving for our work in healthcare, entertainment and other pro MICE sectors. We expect that domestic brands will experience a faster recovery compared with their international peers. Furthermore, we are positioned to tap into more opportunities as we observed a high demand for ad visible to subscribers and on key dramas. For Performance Ads, our strategy is to strengthen our offering for key clients in established areas like Internet services, e commerce and gaming. Meanwhile, we are set to boost revenue in new growth areas such as live streaming, e commerce and short form dramas.

Speaker 2

Technological innovation is our priority. We need to provide a cutting edge and solution to maintain our privileged edge at a competitive edge. Moving on to technology and the products. Our commitment is centered around fostering technology innovation to push the industrialization of content protection, improve the user experience and boost operating efficiency. We have integrated the latest technology into our top range of production.

Speaker 2

For example, our major orangold drama, the story of Mystic's Amu Video leveraged virtual production to achieve remarkable results, capturing over 3,000 minutes of footage. This pioneering technology must have a paradigm shift in filmmaking enable immersive, efficient and creatively on the left storytelling for the future. Another example for many IT original productions, on-site footage could be immediately uploaded to our proprietary cloud, enabling remote production, oversight and the content quality checks as well as a swift real time editing to upper airfertib, the post production phase. This boosts our efficiency in both production and the program management. We are leveraging technologies to refine our products and enhance user experience as well.

Speaker 2

Our deployment of AI to filter out poor quality comments and provide viewers, create better community environment and boost user engagement. In addition, they are broadening the reach of technology to allow more audiences to engage in indulge in the ultimate viewing experience soon our Pioneer XAV Max. In terms of generative AI, we are advancing every state of content creation from planning, development to promotion, enhancing both efficiency and creativity. These efforts not only improve content production and operation efficiency, but also unleash creative potentials. Over the past year, we used AI for mass producing quality and marketing materials, which outperformed manual design, including zoom rates and wheel shape.

Speaker 2

Additionally, AI's capability to comprehended video content at minutes level enables detailed plot summaries for each playlist, now available for over 3,000 new drivers. Finally, for our business performance in regions outside of Mainland China, We achieved our 1st full year operating profit in 2023. Additionally, we continue to expand the influence of C Pop with C dramas contributing more than 50% of revenue. In Q4, membership revenue and ad revenue both recorded double digit annual growth driven by the growing popularity of premium content among users and advertisers. Membership revenue increased by over 80% in Japan, Hong Kong and the U.

Speaker 2

K. And over 50% in Mexico and South Korea. Ad revenue grew 20% annually and 49% sequential revenue. Our 3 dramas have continued to captivate international audiences. Sorry, our premium talents lead ranking in many markets, setting records high metrics for Chinese content on our overseas platform.

Speaker 2

Meanwhile, A Journey to Love also dominated many charts in Southeast Asia, North America and Australia during the broadcasting period. We are also exploring ways to bring overseas local content to the domestic Chinese market. In January this year, we debuted our original Malaysia drama, in China, making a solid step in further amplifying the synergy between domestic and overseas content. Our pursuit of collaborative opportunities remain strong. We have introduced bundled plans through partnership with telecommunications providers in Thailand and Hong Kong.

Speaker 2

They also worked with tourism authorities in Thailand, Singapore and Hong Kong to craft specialized commercial content and advertisements. Looking into 2024, we have prepared an exciting slate of CPAP to key markets while ramping up or restore production of premium content for local users. Mostly, we are set to debut an international version of the iQIYI original music show, A Young of You. Meanwhile, we will continue our efforts to promote C dramas and the local content in partnership with Southeast Asia TV Station. Alongside increasing our brand influence in key markets, we also aim to explore diverse IP monetization opportunities In summary, the year of 2023 marked a milestone for iQIYI.

Speaker 2

It's exciting to see that the transformation we've got back in 2020 2 really paid off. We celebrated the record high revenue profits and cash flow. In 2024, we aim to sustain the highly quality growth trajectory and further growth of revenue and the profit. We are confident that our efficient content production and robust operations will drive further success. We also continue to integrate advanced technologies to increase productivity and support our strategy of long term sustainable growth.

Speaker 2

We are enthusiastic about collaborating with our stakeholders for our growth priorities 2024. Now let me pass on to Jun to go through our financial performance. Thanks, Mr. Gong, and hello, everyone. We maintained our strong momentum in 2023.

Speaker 2

The impact of financial results once again demonstrated the resilience and the scalability of our business models With increased profit and enhanced liquidity, we have an even greater capacity to sustain a long term value creation of our stakeholders. Now let me walk you through the key numbers. In 2023, total revenues increased by 10% from 2022 and reached RMB31.9 billion. The revenue growth was driven by membership and online advertising services as both recorded double digit annual growth. Membership services revenue hit RMB23.3 billion, up 15% annually.

Speaker 2

The growth was driven by the increase in average revenue per membership, I. E. Arm and a rise in average daily subscribers. Online advertising revenue grew by 17% annually and reached RMB6.2 billion. The rise was primarily fueled

Speaker 1

by the

Speaker 2

growth in performance based ads and to a lesser extent, the brand ads. Notably, performance based ads revenue actually reached historical high in 2023. Turning to our offline performance in Q4. Total revenues increased 1% annually to RMB7.7 billion. Membership services revenue was RMB4.8 billion, up 1% annually.

Speaker 2

Our ARM ARM strategy was highly successful, achieved sequential growth for 5 consecutive quarters. Online advertising services revenue was RMB1.65 billion, up 6% annually and exceeded our expectations. The growth was largely driven by the growing attractiveness of our premium content among advertisers. Now moving to the costs and expenses. For 2023, travel cost was RMB16.2 billion, down 2% annually.

Speaker 2

Total operating expenses was RMB5.8 billion, up 8% annually. For Q4, the common cost was RMB3.7 billion, down 5% annually, mainly driven by our improvement in the content strategy and operating efficiency and a fewer number of major variety shows launched in the quarter as well. The total operating expenses was RMB1.4 billion, down more than 1% annually. Turning to profit and cash flows. For 2023, we successfully delivered what we promised for profit growth earlier in the year.

Speaker 2

Our non GAAP operating income surged to over RMB3.6 billion, up 6% to 8% annually. For Q4 alone, the non GAAP operating income was RMB928 million, positive for 8 consecutive quarters. Furthermore, our free cash flow in 2023 totaled RMB3.3 billion, achieving its 1st full year positive with Q4 contributing RMB614 1,000,000. Strong cash flow improved the healthiness of the balance sheet and leading to value creation from deleveraging and derisking. As of the end of Q4, we had cash, cash equivalents, restricted cash, short term investments and long term restricted cash, including the prepayment and other assets, totaling of RMB6.2 billion.

Speaker 2

In terms of the future use of the cash, the company has a total of US396 million dollars on convertible bond convertible on August 1, 2024. After meeting this potential repayment obligation, the management will be able to actively explore various shareholder value enhancement initiatives, such as the commonly used share buyback on top of our investment for future business growth. The implementation of such plan is contingent upon the financial condition of the company, the market condition at that specific point of time and is subject to our further discussion approval. To conclude, echoing with Mr. Gong's earlier remarks, we are now with substantially strengthened the fundamentals, remain deeply committed to creating enduring value for all stakeholders and to continue leading in the future evolution.

Speaker 2

As we just celebrated the Chinese New Year, I would like to take this moment to extend our sincere thanks to our investors and analysts for your consistent support throughout our path. For detailed financial data, please refer to our press release on our IR website. Now we will open the floor for Q and A.

Operator

Thank you, sir. We will now begin the question and answer session. And the first question we have will come from Zhejiang Zhang of CICC.

Speaker 1

Given that other players have strong pipelines this year, what's your strategy and the KPI for 2024? And what indicator are you most concerned about? In the long term, is there anything that can become a new driver? Thank you. Our CEO, Gong Li, is answering this question.

Speaker 1

So our target for 2024 is to maintain high quality growth. With that is that revenue and profits will both grow and the profit will outpace the growth of revenue. And this target was set by 2023, Q4, and that hasn't changed. It comes in different aspects, three points so far. The first is related to content.

Speaker 1

First is we're recruiting the top notch talent producing very high quality content. That's the first one. And then the second one is by using very effective evaluation and decision making process and also the management process to systematically increase the hit rate of our entire content offerings. And third is to utilize our content management program to really to improve the efficiency of our content production and operation. In addition to what I just mentioned, we're also focusing on new business areas.

Speaker 1

Hopefully, that will become our second growth curve in the future, include but not limited to, 1st, overseas business and also IP derivatives, including both online and offline segment and also to utilize generative AI to really improve our operating efficiency and content capability. And then in terms of financial aspect, we'll invite our CFO, Wang Jing, to add on.

Speaker 2

Sure. I will answer your question in English, and thanks a lot, it's an important question. I think that when we are looking at our financial numbers for 2024, we always focus on 2 keywords, which are growth and health. Then the pursuit of the high quality growth has been repetitively mentioned during our comments and is self evident. Due to the time constraint, we will not get into details on this call, but we'll be happy to share color in future occasions.

Speaker 2

But in this call, we'd also like to highlight that in 2024, what you will observe is a further improvement of our financial health in it because we have a very solid growth in our operating cash flow, which deleverages our balance sheet and actually offers 2 critical benefits. And first, in my view, I think it gives us a clear roadmap to decrease the average cost of the capital. The steady stable cash inflows actually gives us the ability not only to pay down existing debt, but also to tap into the low cost capital pool such as long term loans or investment grade credit products, which will otherwise not be available. And such low cost capital could be used gradually to replace the previous high cost debt and mathematically is translating to a possible decrease of the total discount rate for the long term ETF model. So if our shareholders and analysts agree with such an argument, and I think starting with from 20 and 4 and going forward, you should probably increasingly take reference to our net income instead of the operating profit to check the progress because our net income won't be able to capture and reflect this positive value creation from the de risking and deleveraging.

Speaker 2

And on top of that, as we previously discussed, it also offers us more tools, I think, to enhance the shareholders' returns. And this is the 2nd critical benefit. I will not expand in this call and repeat myself. So as a result, in summary, I think our goal our financial goal for 2024 is to deliver a healthier balance sheet and a stronger P and L to our investors. Thank you.

Speaker 2

Thank you.

Operator

The next question we have comes from Lincoln Kang of Goldman Sachs.

Speaker 2

So

Speaker 3

thank you, management, for taking my question and congrats on the solid 2020 results. So my question is about ARGC. How would the management use the latest generics AI technology, especially Luxtera, how would implication you will have to move the drama industry as well as to IQ themselves? And what's the company's plan in terms of the investment and strategy in this front? Thank you.

Speaker 1

We'll invite our CTO, Wendong, to answer this question. We are very bullish on the opportunities that the development of generative AI technology can bring to the long form video industry and believes that actively applying this technology can significantly enhance creative efficiency and elevate the levels of creation and decision making. It can also play a very important role in the planning, development, production and promotion of content. In addition, the rapid advancement of generative AI technology enables artists to use this technology to create higher quality works with greater efficiency. This is particularly true for the creation and production of animated content powered by generative AI, which has the potential to break through the long standing capacity barriers and drive changes in the industry landscape based on creative levels.

Speaker 1

We have been keeping a close eye on the latest development in the generative AI industry and actively establishing cooperation with market leading companies in China and abroad. We are implementing the latest generative AI technologies in the content production process, especially by combining ITE's extensive long form video chunks data with large language models for training and fine tuning. Our aim is to develop generative AI powered vertical applications tailored for long term video scenarios. And going forward in the future, we will step up our investment in the R and D and application of generative AI technology. We plan to use this technology to develop and comprehensively upgrade our in house intelligent production system, thereby empowering the creation of IT's professional video content.

Speaker 1

Thank you.

Operator

Next, we have Lei Zhang of Bank of America Securities.

Speaker 1

We noticed that major player are more focusing on the top content last year. And can you share with us your view on content communication? And how should we competitive in terms of content in 2024? Thank you. We'll invite our Chief Content Officer, Xiaohui, to answer this question.

Speaker 1

The competitive market dynamic is an ever present reality. While where the ultimate competition we think lies in the substantial sustainability of high quality content supply as well as achieving a balance and a win win situation in terms of content quality and also commercial returns. And in addition, capital is not the only sole barrier to competition. IQIYI's ability to maintain a market leading position in the industry is actually underpinned by the accumulation of talent, control of industry resources and effective content review and management mechanism and support from our business intelligence system. And we believe all of which are indispensable.

Speaker 1

Our content creation values and objectives actually focus on 3 areas. 1st is to produce content with high public recognition and market returns second is to create innovative high quality content and third is to continuously focus on content efficiency and the number of key premium titles and social insights. In terms of the 4 drum category, there has been a clear improvement in the quality of our content inventory actually As key premium content is critical to maintaining a high competitive edge in the market, we maintain a market leading level of inventory reserve for premium titles. For 2024 lineup of our IT Originals and exclusive licensed dramas, the premium key titles are expected to account for over 50%. And thank you.

Operator

This will conclude today's question and answer session. I would now like to turn the conference call back over to management for any closing remarks.

Speaker 1

Thank you, everyone, for supporting us and joining the call today. And if you have further questions, feel free to contact our team. Thank you.

Speaker 2

Thank you. Bye bye.

Operator

And we thank you for your time also today. The conference call has now concluded. Again, we thank you all for attending today's presentation. At this time, you may disconnect your lines. Take care.

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Key Takeaways

  • iQIYI delivered its best year ever in 2023 with record total revenue of RMB31.9 billion (up 10% YoY), non-GAAP operating profit of RMB3.6 billion (up 68% YoY) and free cash flow of RMB3.3 billion.
  • The company solidified its market leadership in China’s long-form video industry, ranking #1 in drama viewership share for three consecutive years, airing 7 of the 10 most viewed new dramas and producing over 65% of key dramedy originals.
  • Membership services revenue reached RMB20.1 billion (up 15% YoY) with Q4 ARPU hitting a record RMB15.98 (up 17% YoY), driven by premium tier upselling, value-added services and a rising share of annual plans.
  • iQIYI is pioneering technology innovation in content production and user experience, deploying its proprietary Content Production Management System, virtual production workflows and generative AI tools to boost efficiency, quality and engagement.
  • The overseas segment turned its first full-year operating profit in 2023, with membership revenue up over 80% in Japan, Hong Kong and the U.K., and is expanding C-Drama influence through local partnerships and bundled telecom offerings.
AI Generated. May Contain Errors.
Earnings Conference Call
iQIYI Q4 2023
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