To The Moon

iQIYI, Inc. (IQ, HOLD) - 4Q In Line; 2025 Growth Outlook Uncertain;

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We are maintaining our HOLD rating and $2.5 PT after IQ reported largely in-line but declined revenue and profits. By segment, membership revenue declined 15% y/y (vs. -13% in 3Q), likely due to lower subscribers (IQ does not disclose sub count anymore) due to a lighter content slate. 4Q advertising revenue declined 13% y/y (vs. -20% in 3Q). Due to declined revenue, 4Q's non-GAAP operating margin also declined to 6%, from 12% a year ago. 4Q's operating cash was RMB 519M, vs. 634M a year ago.

Per mgmt., 1Q membership revenue should rebound sequentially driven by better content slate. Total revenue is expected to be around RMB 7.1B, implying a growth of 7% q/q but still down 10% y/y, and is 2%/1% below Tiger/Street. 1Q Non-GAAP operating income is expected to be around RMB 600M, also up q/q but down y/y.

Key 2025 strategies include: 1) Strengthen premium long-form video content; 2) Expand ultra-short series monetization and ad revenue; 3) Grow international business and local-language content; 4) Improve AI-driven production and personalization; 5) Optimize membership offerings and reduce churn.

We believe 2025 revenue growth will remain largely dependent on the content slate, which is inherently difficult to predict. Additionally, monetization of ultra-short series is still in its early stages, with limited visibility at this time. Maintain HOLD.

4Q revenue in line with Tiger/Street. By segment, membership revenue declined 15% y/y (vs. -13% in 3Q), in line with Tiger/Street. Online advertising declined 13% y/y (vs. -20% in 3Q), also largely in line with Tiger/Street. Content distribution revenue was also largely in line. And others revenue was 2% below Tiger/Street.

4Q adjusted EBITDA of RMB 444M was 2%/1% above Tiger/Street. Content costs of RMB 3.44B was down 7% y/y, in line with Tiger but 4% below Street. Gross income of RMB 1,619M (24% gross margin) was in line with Tiger but 3% above Street. SG&A was 3% below Tiger but 1% above Street. R&D was 5%/6% above Tiger/Street.

1Q outlook. See above.

Estimate revisions. Decreasing 1Q revenue estimates by 2%, with membership revenue increased by 5%, but offset by 8% lower advertising revenue. Decreasing 1Q content costs by 3%. Combined, 1Q gross income estimate is largely unchanged, with margin increased by 30bps. Increasing 1Q non-GAAP EBIT by 1%, with a 20bps higher margin. Increasing '25E revenue estimate by 1%, but lowering gross margin by 30bps, resulting in 4% lower non-GAAP EBIT.

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