Iqiyi roadshow PPT exposure： listed on Nasdaq next week

Editor’s Note: This article comes from Tencent Technology (ID: qqtech) and is reproduced by 36Kr with authorization.

On March 19th, the PPT of iQiyi roadshow was exposed, and the company will be listed on NASDAQ next week.

The following is a detailed interpretation of PPT English documents of roadshows.

Iqiyi IPO issued 125 million American Depositary Receipts (ADSs) at a price range of $17 to $19, with one ADS =7 common shares.

Pricing date: March 28, 2018

Stock code: IQ, listed on Nasdaq Stock Market.

Use of raised funds: content acquisition and production; R&D investment; Working capital and general enterprise use

Locking period: 180 days

Underwriters: Goldman Sachs, Credit Suisse and Bank of America Merrill Lynch are joint lead underwriters; Huaxing Capital, Citigroup and UBS Investment Bank are joint deputy underwriters.

Gong Yu, founder and CEO of iQiyi, and Wang Xiaodong, CFO.

Eager to become a technology-based entertainment giant, bringing fun and joy to people and their families.

The online entertainment industry in China has been growing rapidly, and the economic growth is expected to continue. According to the data provided by iResearch, the entertainment demand in China has reached RMB 1.06 trillion in 2016, and it is expected to increase to RMB 2.769 trillion in 2022, with a compound annual growth rate of 17.3%.

On the other hand, the scale of China’s online video member service market has increased from 400 million yuan in 2012 to 12.1 billion yuan (about 1.9 billion US dollars) in 2016; It is estimated that it will reach RMB 73 billion by 2022, with a compound annual growth rate of 34.9%.

Paid content+content distribution = subscription mode

Benefits of subscription mode: increase content investment-attract more subscribers-and get higher revenue.

Iqiyi’s business model-supported by the ability to monetize an IP in various ways.

Premium video content+paid membership service

In the fourth quarter ended December 31, 2017, the average monthly mobile users of iQiyi were about 421.3 million, and the average daily mobile users were 126.0 million. The average monthly visiting users of PC are about 424.1 million, and the average daily visiting users of PC are 53.7 million.

In December 2017, users watched 9.2 billion hours of video content on the iQiyi platform, and each user watched 1.7 hours of video content on the iQiyi application every day on average. Aiqiyi also owns the Aiqiyi Bubble Community, a leading entertainment-based social media platform in China, which allows fans to follow and interact with celebrities and entertainment communities.

According to the total time spent by users, iQiyi ranks second in China mobile application market; According to the calculation of monthly average visiting users, iQiyi ranks fourth.

As of December 31, 2017, the number of iQiyi subscribers was 50.8 million; As of February 28, 2018, the number of subscribers has risen to 60.1 million, which is faster than that of global peers.

Collect users’ search and play habits, consumption habits and interaction, and get public opinion analysis, user analysis and personalized recommendation through intention recognition, behavior model and machine learning.

Iqiyi Bubble: Focus on social networks in the entertainment field by targeting topics through celebrity dynamic news and content.

Powerful network effect, users realize socialization when watching videos.

More user behavior data-better content production and refined marketing-increase user participation and spend more time.

Through innovation in content selection, distribution mode and content production, iQiyi has become a market leader.

According to the report of iResearch, the original content of iQiyi occupies 5 in the top 10 Internet variety shows in China and 6 in the top 10 online original dramas.

In 2015, iQiyi released a high-budget online original TV series "Tomb Notes", which generated more than 100 million traffic within 24 hours of its release, with a total traffic of more than 4 billion.

Since 2015, iQiyi has released several award-winning original dramas, including Old Nine Gates and Crime without a License. The above two series generated about 13 billion traffic.

The company also took the lead in launching a series of very popular Internet variety shows, such as Qipa Shuo, which was released in 2014 and is now in its fourth season, and Hip-hop in China, both of which generated 3 billion traffic.

The video playback volume of "Hip Hop in China" reached 3 billion times; The number of short videos played reached 8 billion times; It has occupied 36 seats in 50 hot topics of Sina Weibo.

The program has produced a huge economic effect, and the advertising position of the 60-second finale is RMB 45 million.

Predicting video traffic and movie box office are key benchmarks to help determine the cost of content.

Iqiyi’s content ecosystem and strong publishing and monetization capabilities attract and support different types of content partners and provide them with optimized return on investment.

The functions provided by iQiyi to content partners include: content management, user and traffic data, and revenue sharing information.

Iqiyi’s solutions for advertising partners include: video pre-positioning and pop-up advertisements, In-Feed advertisements and innovative advertisements based on content.

Through artificial intelligence, big data and cloud computing, iQiyi has the ability of intelligent creation, intelligent output, intelligent labeling, intelligent publishing, intelligent viewing, intelligent monetization and intelligent customer service.

Gong Yu, founder and CEO of iQiyi; Wang Xiaohui, Chief Content Officer; Alvin Tang, Chief Technology Officer; Wang Xiaodong, Chief Financial Officer; Wang Xiangjun, Chief Marketing Officer; Yang Xianghua, Senior Vice President; Senior vice president Duan Youqiao.

Iqiyi has technology and innovative genes, and is inclusive and respectful.

In the field of original content, iQiyi will recruit top talents, systematically produce phenomenal original content, and strengthen the relationship with upstream industry participants.

In terms of technological innovation, iQiyi will use artificial intelligence and big data to make content, enhance entertainment experience, introduce content recommendation, serve advertisers and content partners.

In the content provision ecosystem, iQiyi will expand the coverage of long tail content, increase the number of iQiyi partner accounts, and further develop content in new media formats.

In terms of user base, iQiyi will increase its appeal to users of different age groups, provide excellent and personalized experiences and strengthen content distribution.

In terms of monetization channels, iQiyi will increase the penetration rate of paying users, establish a multi-layer paying user system, expand In-Feed advertising services and develop other monetization channels.

The monetization opportunities of iQiyi include membership services, content publishing, online games, paid reading, online advertising services, copyright authorization, e-commerce and so on.

The total revenue of iQiyi in 2017 was RMB 17.3784 billion (about US$ 2.671 billion), an increase of 54.6% compared with RMB 11.2374 billion in 2016 and RMB 5.3186 billion in 2015.

Iqiyi’s membership service revenue in 2017 was RMB 6,536.0 million (about US$ 1,004.6 million), an increase of 73.7% compared with RMB 3,762.2 million in 2016 and RMB 996.7 million in 2015.

The proportion of membership service revenue in total revenue increased from 18.7% in 2015 to 33.5% in 2016, and further increased to 37.6% in 2017.

Iqiyi’s online advertising revenue in 2017 was RMB 8,158.9 million (about US$ 1,254.0 million), up 44.4% from RMB 5,650.4 million in 2016 and RMB 3,399.9 million in 2015.

The average revenue of iQiyi’s active users per mobile day in 2015 was RMB 60.2, which rose to RMB 89.6 in 2016 and RMB 137.9 in 2017, with a compound annual growth rate of 51.3%.

Iqiyi’s revenue per thousand visit hours in 2015 was RMB 85.8, which rose to RMB 118.5 in 2016 and RMB 158.7 in 2017, with a compound annual growth rate of 36.0%.

The total revenue cost of iQiyi in 2015 was RMB 6.042 billion, of which the content cost was RMB 3.694 billion, the bandwidth cost was RMB 1.167 billion and other costs were RMB 1.180 billion. In 2016, the total revenue cost was RMB 11.437 billion, of which the content cost was RMB 7.541 billion, the bandwidth cost was RMB 1.875 billion and other costs were RMB 2.021 billion. The total revenue cost in 2017 was RMB 17.387 billion, of which the content cost was RMB 12.617 billion, the bandwidth cost was RMB 2.190 billion and other costs were RMB 2.579 billion.

The gross profit margin of iQiyi was -13.6% in 2015, -1.8% in 2016 and 0.0% in 2017. Iqiyi’s revenue cost accounted for 113.6% of total revenue in 2015, 101.8% in 2016 and 100.0% in 2017.

The operating expenditure of iQiyi in 2017 was RMB 21,331.3 million (about US$ 3,278.6 million), higher than RMB 14,026.9 million in 2016 and RMB 7,746.2 million in 2015. Among them, the revenue cost was RMB 17,386.6 million (about US$ 2,672.2 million), higher than RMB 11,436.6 million in 2016 and RMB 6,041.8 million in 2015; Expenditure on sales, general affairs and administration was RMB 2,675.0 million (about US$ 411.1 million), higher than RMB 1,765.8 million in 2016 and RMB 1,204.5 million in 2015; R&D expenditure was RMB 1,269.8 million (about US$ 195.2 million), higher than RMB 824.5 million in 2016 and RMB 500.0 million in 2015.

The reasons why iQiyi is worth investing include: its leading position in the market; Have an advanced business model to capture market opportunities; A deep understanding of the entertainment industry in China; Top original production ability; Invest in content in an orderly and efficient manner.

China’s entertainment industry will become a trillion-dollar market.