iQIYI announces financial results for the third quarter

iQIYI, China’s Netflix, reported on Tuesday total revenues for the third quarter ended Sept 30 of eight billion yuan ($1.1 billion), up seven percent year over year.

Non-GAAP operating profit for the quarter was 895 million yuan ($126 million), up 71 percent from a year ago, which marks the seventh consecutive quarter that the company has secured positive profit.

“We recorded strong results in both revenues and profits. ARM increased by 12 percent year-over-year, driven by our compelling content offering and the growing perceived value of our membership privilege. Our business proves defensible against the fluctuations of economic cycles,” said Gong Yu, founder and CEO of iQIYI.

The average daily subscribers soared by 6 percent annually to 107.5 million in the third quarter.

The earnings report said that membership services revenue reached five billion yuan ($704.2 million) for the second time in history, up 19 percent year over year, driven primarily by average revenue per membership (ARM) growth.

ARM reached 15.54 yuan ($2.19), up 12 percent annually and five percent sequentially, thanks to the high appeal of exclusive content and upgraded member benefits.

For example, the wuxia drama Mysterious Lotus Casebook was the 10th drama that broke the 10,000 iQIYI content popularity index score and generated over 18 million yuan ($2.54 million) in merchandise sales.

iQIYI VIP members were more willing to spend as they were given more benefits. In addition to early access to the latest episodes, they were offered upgraded audio-visual experience and the chance to attend online concerts of hit dramas. VIP members can also purchase drama spin-offs with membership rewards points in an exclusive online shop.

It was the first time that the video streaming giant’s ARM exceeded 15 yuan. Duan Youqiao, senior vice president of iQIYI, called it within expectations.

“This is the fruit of our long-term efforts in improving content quality and member benefits. Users are increasingly willing to pay reasonable prices for high-quality content and services,” he remarked, predicting that the ARM would keep growing in the next quarter.

Backed by compelling original content, the company’s online advertising services raked in 1.7 billion yuan ($239.4 million) in the third quarter, up 34 percent from a year ago.

Revenue from brand ads recorded double-digit growth both annually and sequentially. Income from performance ads recorded strong annual growth of over 70 percent, mainly due to targeted and efficient operations and the effective use of generative AI.

According to the report, the content distribution revenue was 526 million yuan ($74.1 million), and income from other sources reached 803 million yuan ($113.1 million).

The influence of high-quality original Chinese dramas swelled in the overseas market in the third quarter. Membership revenue in some markets outside the Chinese mainland, including Japan, Korea, the US, and Hong Kong, increased by over 50 percent yearly.

The report also highlighted the company’s pioneering use of interactive features such as the “Karaoke Mode” in its variety show The Big Band 3, enabling the audience to sing along for a more immersive experience. iQIYI has also introduced generative AI to improve search efficiency, content creation, and marketing.