To The Moon

$iQiyi Inc.(IQ)$ (HOLD) reported 3Q25 results showing modest sequential stabilization but continued YoY pressure. Total revenue reached RMB 6.68bn, down 8% YoY (vs. -11% last quarter), partly due to the end of a cooperation arrangement (~RMB 300m impact), yet up 1% QoQ. Non-GAAP operating loss was RMB 22m, compared with a profit of RMB 59m last quarter. The Tiger Research team notes that early regulatory adjustments have provided some benefit, but structural impacts on domestic industry growth are expected to materialize gradually.

Membership Revenue
Membership revenue rose 3% QoQ to RMB 4.21bn, supported by strong summer content such as The Thriving Land, Knockout 2, and serialized IP titles. However, YoY membership revenue still declined 4%, reflecting a less favorable content slate and ongoing domestic competition. Management expects low-single-digit YoY membership growth in 4Q, suggesting only a mild recovery despite a fuller release schedule. Enhancements in membership services—including family plans, express access, offline events, and IP merchandise—may support retention, but growth continues to rely heavily on content performance, which remains variable.

Advertising Revenue
Advertising revenue declined 7% YoY and 2% QoQ to RMB 1.24bn. While brand advertising showed pockets of strength from premium variety shows, overall demand remained mixed, and the lack of major seasonal campaigns contributed to softer performance. Management guides for low-single-digit QoQ growth in 4Q, supported by holiday demand and new content launches, yet YoY decline is still expected.

Content and Regulatory Environment
Content costs increased 7% QoQ due to summer releases, although management emphasized long-term cost discipline. Micro-dramas have become an important retention tool, yet the segment remains congested across the industry. iQIYI’s own micro-drama library and original output support engagement, but monetization is still limited. Regulatory reforms—including the 21-point framework—are improving approval efficiency for key dramas and multi-season formats, though the full effects will unfold gradually.

Overseas Growth
Overseas membership revenue grew >40% YoY, driven by Southeast Asia, Latin America, and the Middle East. Daily subscribers reached record highs, and some Thai originals generated international revenue surpassing domestic results. Micro-drama revenue overseas also grew >100% sequentially. Despite this encouraging trajectory, overseas revenue remains a small portion of total revenue (<10%), and scale is insufficient to offset domestic softness in the near term. Tiger Research team views overseas expansion as a multi-year initiative rather than a near-term growth driver.

Outlook
While sequential stabilization is expected in 4Q and overseas businesses continue to expand rapidly, domestic growth remains constrained, and competition is unlikely to ease. Regulatory reforms may improve operational visibility, but industry-wide recovery is likely gradual. Near-term earnings improvement depends primarily on cost discipline rather than top-line acceleration.

The Tiger Research team maintains a HOLD rating with a $2.5 price target, revising 4Q revenue +2%, content costs +6%, resulting in a gross income estimate -11% and margin down 320bps. 4Q non-GAAP EBIT is decreased 83%, with a 425bps lower margin.