(IQ) 2023 Q1 法說會逐字稿

Thank you for standing by, and welcome to the iQIYI First Quarter 2023 Earnings Conference Call. (Operator Instructions) I would now like to hand the conference over to Chang Yu. Please go ahead.

感謝您的支持，歡迎來到愛奇藝 2023 年第一季度財報電話會議。 （操作員說明）我現在想把會議交給張宇。請繼續。

Thank you, operator. Hello, everyone, and thank you for joining iQIYI's First Quarter 2023 Earnings Conference Call. The company's results were released earlier today and are available on the company's Investor Relations website at ir.iqiyi.com.

謝謝你，運營商。大家好，感謝大家參加愛奇藝2023年第一季度財報電話會議。公司業績於今天早些時候發布，可在公司投資者關係網站 ir.iqiyi.com 上查閱。

On the call today are: Mr. Yu Gong, our Founder, Director and CEO; Mr. Jun Wang, our CFO; Mr. Xiaohui Wang, our CCO, Chief Content Officer; Mr. Wenfeng Liu, our CTO, Chief Technology Officer; and Mr. Youqiao Duan, Senior Vice President of our Membership Business.

今天的電話會議是：我們的創始人、董事兼首席執行官 Yu Gong 先生；我們的首席財務官王軍先生；我們的 CCO、首席內容官 Xiaohui Wang 先生；劉文峰先生，我們的首席技術官，首席技術官；以及我們的會員業務高級副總裁段友橋先生。

Mr. Gong will give a brief overview of the company's business operations and highlights, followed by Jun, who will go through the financials. After the prepared remarks, Xiaohui, Wenfeng and Youqiao will join Mr. Gong and Jun in the Q&A session.

Gong 先生將簡要介紹公司的業務運營和亮點，隨後 Jun 將介紹財務情況。準備好的發言結束後，小輝、文峰和遊喬將與宮老師和君一起參加問答環節。

Before we proceed, please note that the discussion today will contain forward-looking statements made under the safe harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements are subject to risks and uncertainties that may cause the 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. iQIYI does not undertake any obligation to update any forward-looking statement except as required under applicable law.

在我們繼續之前，請注意今天的討論將包含根據 1995 年美國私人證券訴訟改革法案的安全港條款作出的前瞻性陳述。前瞻性陳述受風險和不確定因素的影響，可能導致實際結果與我們目前的預期存在重大差異。潛在風險和不確定性包括但不限於我們向美國證券交易委員會提交的公開文件中概述的風險和不確定性。除適用法律要求外，愛奇藝不承擔任何更新任何前瞻性陳述的義務。

With that, I will now turn the call over to Mr. Gong. Please go ahead.

有了這個，我現在將把電話轉給龔先生。請繼續。

Hello, everyone. We started 2023 with an exceptionally strong first quarter, entering a new chapter of high-quality growth. Our content flywheel once again demonstrated its power. The exceptional iQIYI originals drove financial performance and the market share reaching new highs.

大家好。我們以異常強勁的一季度開局，開啟了 2023 年高質量發展的新篇章。我們的內容飛輪再次展示了它的力量。出色的愛奇藝原創作品帶動財務業績和市場份額再創新高。

To be specific, iQIYI maintained its dominant leading position in dramas, reaching new high in market share. Our long-standing original content strategy bore fruit once again. The Knockout became the best-performing drama in our history. In Q1, original content continued to be the main driver of new releases and revenue performance and further enforced the brand perception that iQIYI is the blockbuster powerhouse and significantly improved subscriber stickiness.

其中，愛奇藝在劇集方面繼續保持絕對領先地位，市場份額再創新高。我們長期堅持的原創內容戰略再次取得成果。淘汰賽成為我們歷史上表現最好的戲劇。第一季度，原創內容繼續成為新片發布和收入表現的主要驅動力，進一步強化了愛奇藝作為大片強國的品牌認知，並顯著提高了用戶粘性。

Both total revenues and the membership services revenue hit quarterly all-time highs. Total revenues recorded double-digit growth both annually and sequentially. In particular, the core membership services revenue reached a new high, up 24% annually and 17% sequentially. High-quality original content drove robust growth in subscriber base.

總收入和會員服務收入均創下季度歷史新高。總收入每年和環比均錄得兩位數增長。特別是，核心會員服務收入創下新高，年增長率為 24%，環比增長 17%。高質量的原創內容推動了用戶群的強勁增長。

In Q1, the average daily number of total subscribing members approached 129 million, a quarterly net addition of over 17 million. This marks the second consecutive quarter with quarterly net addition of over 10 million. As of March 31, the number of subscribing members was 120 million, which reflects the usual seasonality following the Chinese New Year and is our best-ever end of Q1 performance.

一季度，日均訂閱會員總數接近1.29億，季度淨增超1700萬。這標誌著連續第二個季度的季度淨增量超過 1000 萬。截至 3 月 31 日，訂閱會員人數為 1.2 億，這反映了春節後通常的季節性，是我們有史以來最好的第一季度業績。

Non-GAAP operating income exceeded RMB 1 billion in Q1, expanding for the sixth consecutive quarter. More importantly, free cash flow also exceeded RMB 1 billion this quarter, a critical milestone as we steadily become more self-sustaining.

第一季度非美國通用會計準則營業收入超過人民幣 10 億元，連續第六個季度擴大。更重要的是，本季度自由現金流也超過了 10 億元人民幣，這是我們穩步變得更加自給自足的一個重要里程碑。

As we mentioned last quarter, we believe these recent solid results are just the start of a phase of high-quality growth. In Q1, we witnessed the power of premium long-form video and its strong appeal to users. Our ability to produce and deliver highly quality popular original content is our core competence, which is difficult to surpass in the short term. We will continue to evolve to secure our industry-leading position in the long run.

正如我們在上個季度提到的那樣，我們相信最近這些穩健的業績只是高質量增長階段的開始。在第一季度，我們見證了優質長視頻的力量及其對用戶的強大吸引力。我們製作和提供高質量的流行原創內容的能力是我們的核心競爭力，這是短期內難以超越的。從長遠來看，我們將繼續發展以確保我們的行業領先地位。

Currently, our businesses can be classified into three stages: core, growth and early stage. Our core businesses include membership services, online advertising services, content distribution, IP licensing, et cetera. Our growth businesses include iQIYI Lite and Suike. Our early-stage businesses include our overseas business and cloud cinema business.

目前，我們的業務可分為三個階段：核心階段、成長期和早期階段。我們的核心業務包括會員服務、在線廣告服務、內容分發、IP授權等。我們的成長業務包括愛奇藝精簡版和隨客。我們的早期業務包括我們的海外業務和雲影院業務。

Now let's go through the performance of our business segments in detail, starting with membership services. Both membership services revenue and the number of subscribers hit record highs in Q1. Membership services revenue surpassed RMB 5.5 billion, up 24% annually and 17% sequentially. The average daily number of subscribing members reached 128.9 million in Q1, a sequential net addition of over 17 million, marking the second consecutive quarter with a net addition of over 10 million. ARM was RMB 14.3 in Q1, up 1% sequentially.

現在讓我們從會員服務開始詳細了解我們業務部門的表現。第一季度會員服務收入和訂閱人數均創歷史新高。會員服務收入超過人民幣 55 億元，同比增長 24%，環比增長 17%。第一季度日均訂閱會員數達到1.289億，環比淨增超1700萬，連續第二個季度淨增超1000萬。 ARM 在第一季度為 14.3 元人民幣，環比上漲 1%。

I'd like to reiterate that the goal of our membership business is maximizing user experience and in return, strengthen and optimize our financial performance. The economics of our membership business are driven by three factors, namely subscriber base, subscriber lifetime and ARM. We take dynamic and balanced approach to our membership business based on many factors, including content supply, user demand and the market environment. This allows us to drive continuous improvements in both membership revenue and user experience.

我想重申，我們會員業務的目標是最大限度地提高用戶體驗，作為回報，加強和優化我們的財務業績。我們會員業務的經濟效益由三個因素驅動，即訂戶基礎、訂戶生命週期和 ARM。我們根據內容供應、用戶需求和市場環境等諸多因素，對我們的會員業務採取動態和平衡的方法。這使我們能夠推動會員收入和用戶體驗的持續改進。

The above-mentioned strategy has helped us build stronger, longer and broader relationships with our users. We saw further optimization of our membership structure and stronger user engagement in Q1. The proportion of annual subscribers increased significantly year-over-year while the lifetime value and the long-term retention rates also improved. In addition, our membership products reached even broader user cohorts in Q1. We saw strong growth from both subscribers with large-screen privilege and iQIYI Lite's ad-supported basic subscription package, which targets differentiated user demographics.

上述戰略幫助我們與用戶建立了更牢固、更長久、更廣泛的關係。我們在第一季度看到我們的會員結構進一步優化，用戶參與度更高。年度訂閱者的比例同比顯著增加，而終身價值和長期保留率也有所提高。此外，我們的會員產品在第一季度覆蓋了更廣泛的用戶群體。我們看到擁有大屏幕特權的訂閱者和愛奇藝精簡版的廣告支持基本訂閱包都實現了強勁增長，該訂閱包針對的是差異化的用戶群體。

So what drove the strong growth in Q1? First, the diversified premium content we released drove new subscribers and improved user retention. Among the strong content offerings, The Knockout broke a number of records and is the best-performing drama which generated the highest membership revenue during the new release window. In addition, dramas such as Unchained Love, Homesick, Every Day and Night, Under the Microscope and Road Home were all well-received by users.

那麼是什麼推動了第一季度的強勁增長？首先，我們發布的多元化優質內容吸引了新訂閱者並提高了用戶保留率。在強大的內容產品中，The Knockout 打破了多項記錄，是在新發布窗口期間產生最高會員收入的最佳表現劇集。此外，《天上掉下的情》、《想家》、《日日夜夜》、《顯微鏡下》、《回家的路》等劇集均獲得用戶好評。

Second, we continued to refine our membership business operations, increasing members' value perception with enhanced benefits. For example, we improved subscribers' conversion and monetization efficiency through sophisticated user analysis, content- and scenario-based marketing initiatives and in-depth research into user growth strategies. In addition, we upgraded our membership center, introducing various high-quality benefits, which drove a significant increase in member benefit consumption in Q1. Looking forward to 2023, we will continue to focus on driving high-quality growth and to pursue further growth in revenue, subscribers and ARM.

二是持續優化會員業務，提升會員價值感知，提升會員權益。例如，我們通過精細的用戶分析、基於內容和場景的營銷計劃以及對用戶增長策略的深入研究，提高了訂閱者的轉化和變現效率。此外，我們對會員中心進行升級，推出各類優質福利，帶動一季度會員福利消費大幅增長。展望2023年，我們將繼續專注推動高質量增長，追求收入、用戶和ARM的進一步增長。

Moving on to content. During the quarter, our content methodology remained highly effective. And our brand image as a diversified and high-quality premium content powerhouse reached new heights. Not only our market share for dramas reached new high, we remained #1 in terms of effective video views for both overall dramas and exclusive dramas categories for the fifth consecutive quarter.

繼續內容。在本季度，我們的內容方法仍然非常有效。我們作為多元化和高質量的優質內容強國的品牌形象達到了新的高度。不僅我們的劇集市場份額再創新高，我們連續第五個季度在整體劇集和獨家劇集類別的有效視頻觀看量方面保持第一。

Original content continued to account for the majority of drama supply and revenue. Original content accounted for 70% of the key dramas we released in Q1, the highest in our history. The revenue contribution ratio of original content also reached new high. As the best-performing drama in iQIYI history, The Knockout was a true mega-hit that broke records across multiple key metrics and generated phenomenal social buzz.

原創內容繼續佔戲劇供應和收入的大部分。原創內容占我們第一季度發布的重點劇集的 70%，是我們歷史上最高的。原創內容的收入貢獻率也再創新高。作為愛奇藝歷史上表現最好的劇集，《淘汰賽》是一部真正的大熱劇，打破了多項關鍵指標的記錄，並產生了驚人的社會影響。

Meanwhile, iQIYI originals have become a major source of content supply for domestic TV networks, including CCTV and provincial satellite channels with whom we have built long-term partnerships. We are the clear industry-leader in this area. In Q1 alone, we distributed around 20 premium dramas to CCTV and provincial satellite TV stations, including The Knockout, Every Day and Night and Miles to Go. Both the volume and revenue of distributed content reached record highs. The Knockout also became the highest rated show of the past 3 years on the major domestic drama channel, CCTV-8.

同時，愛奇藝原創已成為國內電視網絡的主要內容供應來源，包括與我們建立長期合作夥伴關係的中央電視台和省級衛視。我們是該領域明顯的行業領導者。僅一季度，我們就向央視和省級衛視投放了近20部優質劇集，包括《淘汰賽》、《日日夜夜》、《千里之外》等。分發內容的數量和收入均創歷史新高。 《淘汰賽》也成為國內主要電視劇頻道CCTV-8過去三年收視率最高的節目。

As an online media entertainment service provider, our goal is to systematically increase the hit ratio of our premium content. Our long-term commitment to original content enabled us with structural advantage in the industry. Through the years, we have successfully built three strong pillars that support our premium content offerings, namely optimized content production mechanism, strong operating and technical capabilities and top talents. These capabilities will empower us to steadily grow the volume of high-quality content to further enrich our premium content offerings.

作為在線媒體娛樂服務提供商，我們的目標是系統地提高優質內容的點擊率。我們對原創內容的長期承諾使我們在行業中具有結構性優勢。多年來，我們成功打造了支撐優質內容產品的三大支柱，即優化的內容生產機制、強大的運營和技術能力以及一流的人才。這些能力將使我們能夠穩定地增加高質量內容的數量，以進一步豐富我們的優質內容產品。

For content production, we largely improved our industrialized video content production capability through our sophisticated content management mechanism and content production tools. We believe these create effective competitive barriers that are difficult for others to exceed. For content management mechanism, we have established an efficient and comprehensive mechanism running through the full process, from project incubation to assessment, production, promotion, operation and distribution.

在內容生產方面，我們通過完善的內容管理機制和內容生產工具，大幅提升了產業化視頻內容生產能力。我們相信這些創造了其他人難以超越的有效競爭壁壘。在內容管理機制方面，我們建立了從項目孵化到評估、製作、推廣、運營、發行的全流程高效、完善的機制。

For content production tools, we built in-house developed systems to support industrialized video production based on AI, big data and cloud computing. Through these methods, we can further improve our content production and operational efficiency and set a new standard for the Chinese video industry.

在內容製作工具方面，我們構建了自研系統，支持基於人工智能、大數據和雲計算的產業化視頻製作。通過這些方式，我們可以進一步提高我們的內容生產和運營效率，為中國視頻行業樹立新的標準。

With respect to industry talent, we have a compelling creator culture and a talent cultivation mechanism that's highly valued and appreciated by our in-house talents and industry content partners. Our approach is reflected in two aspects. First, in addition to providing competitive economic incentives, we give creators sufficient freedom, letting them to take initiative and unlock their creativity within our disciplined framework. Second, we have always been committed to encouraging fresh young talents. In addition to work with well-known and experienced creators, we also nurture young and emerging talents and help them develop their potential.

在行業人才方面，我們擁有引人入勝的創作者文化和人才培養機制，受到內部人才和行業內容合作夥伴的高度重視和讚賞。我們的做法體現在兩個方面。首先，除了提供有競爭力的經濟激勵外，我們給創作者足夠的自由，讓他們在我們有紀律的框架內發揮主動性，釋放創造力。第二，我們一直致力於鼓勵新銳青年人才。除了與知名和經驗豐富的創作者合作，我們還培養年輕和新興人才，幫助他們發揮潛能。

In 2023, we will continue to launch diversified content across all genres. For dramas in Q2, Echo, directed by famous Chinese director Feng Xiaogang; Thirteen Years, under our Mist Theater; and The Ingenious One have generated some word of mouth. Also starting from Q2, a number of key costume dramas will be released, including Story of Kunning Palace, The Lotus Casebook, Destined and Love You Seven Times. A diverse lineup of dramas in other categories will also be released.

2023 年，我們將繼續推出涵蓋所有類型的多元化內容。第二季劇集《迴聲》由中國著名導演馮小剛執導；十三年，迷霧劇場；和 The Ingenious One 產生了一些口碑。同樣從Q2開始，《坤寧宮物語》、《荷花案》、《命中註定》、《七度愛你》等多部重點古裝劇也將陸續上映。其他類別的多樣化劇集也將發布。

A number of original variety shows will also be launched in Q2, including both returning seasons of hit shows and the debut of new titles. In addition to the already-aired Believe in the Land; HAHAHAHAHA 3; Yes, I Do Season 4; The Detectives' Adventures 3, please also anticipate the launch of our flagship titles such as The Rap of China 2023. Looking ahead, we plan to increase our investment in variety shows in step with the gradual recovery of the advertising market. For Q2, please also anticipate to see new releases in other categories, including original children cartoon Tuktak Man 7 and The Roofus and original animations, The Guardian Legend and Are You OK?

多檔原創綜藝也將在Q2上線，既有熱播劇回歸季，也有新劇首播。除了已經播出的 Believe in the Land；哈哈哈哈哈哈 3；是的，我喜歡第四季；神探奇遇記3，也請期待我們的旗艦作品如中國新說唱2023的推出。展望未來，我們計劃隨著廣告市場的逐步復甦，加大對綜藝節目的投入。對於第二季度，還請期待看到其他類別的新版本，包括原創兒童卡通 Tuktak Man 7 和 The Roofus 以及原創動畫、The Guardian Legend 和 Are You OK?

Moving on to advertising. We are pleased to see that advertising revenue reached RMB 1.4 billion in Q1, up 5% year-over-year. For performance ad, revenue grew 75% annually and its revenue contribution reached a new quarterly high. We successfully acquired a higher share of advertising budgets from key industries, including internet services, e-commerce and games, and made full use of ad slots to effectively improve monetization. In addition, we optimized our algorithms to strengthen user targeting and improve ad effectiveness.

繼續做廣告。我們很高興地看到，一季度廣告收入達到人民幣 14 億元，同比增長 5%。效果廣告收入年增75%，收入貢獻創季度新高。我們成功從互聯網服務、電子商務和遊戲等重點行業獲得更高份額的廣告預算，並充分利用廣告位有效提高變現能力。此外，我們優化了算法以加強用戶定位並提高廣告效果。

For brand ad, Q1 was soft due to typical seasonality. The year-over-year decline was due to the relative high base in Q1 last year. And the ad market back then was not impacted by the pandemic lockdown in Shanghai, which is the main hub for the domestic advertising market. Despite that, we observed growing preference among advertisers, driven by our premium drama, variety shows and diversified ad product. And the launch of a number of variety shows in Q2 would likely to drive the recovery of the brand ad business.

對於品牌廣告，由於典型的季節性，第一季度表現疲軟。同比下降是由於去年第一季度基數相對較高。而當時的廣告市場並沒有受到上海疫情封鎖的影響，上海是國內廣告市場的主要樞紐。儘管如此，在我們的優質劇集、綜藝節目和多樣化的廣告產品的推動下，我們發現廣告商越來越喜歡我們。而二季度多檔綜藝節目的上線，有望帶動品牌廣告業務的複蘇。

We are cautiously optimistic towards the overall brand advertising market this year. Consumption is still recovering in the first half of this year. And we expect to see further recoveries in the second half. Overall, we are positive about the long-term development of the brand ad market. Meanwhile, iQIYI's brand influence and user base are highly valued by advertisers. In terms of ad sectors, we are optimistic about the FMCG sector, which includes food and beverage, travel, domestic, cosmetic brands, smart home appliances and health care.

我們對今年整體品牌廣告市場持謹慎樂觀態度。今年上半年消費仍在恢復中。我們預計下半年會進一步復甦。總體而言，我們看好品牌廣告市場的長期發展。同時，愛奇藝的品牌影響力和用戶基礎也受到廣告主的高度重視。廣告板塊方面，我們看好快消品板塊，包括食品飲料、旅遊、家居、美妝品牌、智能家電和醫療保健。

Moving on to technology and products. Technical innovation is one of our core values, which is critical in driving video industrialization and improved content production efficiency. For virtual production, the technology has been applied in two of our key original dramas. Film sets that adopted this technology saw efficiency improvement by over 30% and reduced the required crew members by 1/3.

轉向技術和產品。技術創新是我們的核心價值之一，對推動視頻產業化、提升內容生產效率至關重要。在虛擬製作方面，該技術已在我們的兩部重點原創劇中得到應用。採用該技術的片場效率提升30%以上，劇組人員減少1/3。

The iQIYI Video Production Management System is a data-driven and highly efficient decision-making system that captures every critical moment in the entire content production process. For example, the system can complete AI-powered revenue projection in just a few minutes. It can also generate estimated content-related cost ratio, a key measure that we use in our original content's decision-making and efficiency monitoring process. Management can utilize these tools to monitor production progress, ROI and use of funds and manage the overall production in real time.

愛奇藝視頻製作管理系統是一個數據驅動的高效決策系統，捕捉整個內容製作過程中的每一個關鍵時刻。例如，系統可以在幾分鐘內完成人工智能驅動的收入預測。它還可以生成估計的內容相關成本比率，這是我們在原創內容的決策和效率監控過程中使用的一個關鍵指標。管理層可以利用這些工具來監控生產進度、投資回報率和資金使用情況，並實時管理整體生產。

We continuously optimize our products with the aim of bringing the ultimate entertainment experience to every user. iQIYI app was honored by the Ministry of Industry and Information Technology for providing user-friendly access tailored for elderly and disabled. We also upgraded iQIYI's semantic search capability to better understand users' search intentions. The search by character feature launched in Q1 helps users quickly find videos based on characters, providing a highly efficient way to search for videos.

我們不斷優化我們的產品，旨在為每一位用戶帶來極致的娛樂體驗。愛奇藝應用程序因提供專為老年人和殘疾人量身定制的用戶友好訪問方式而獲得工信部的榮譽。我們還升級了愛奇藝的語義搜索能力，以更好地了解用戶的搜索意圖。第一季度推出的按人物搜索功能，可以幫助用戶快速按人物查找視頻，提供高效的視頻搜索方式。

We are actively exploring how generative AI applications, built upon large language model can improve content production and promotion efficiency in the long-form video industry. Our internal assessment indicates that generative AI technology can be implemented in multiple business scenarios, including streamlining script brainstorming, creation and review processes. We have initiated the integration of generative AI technologies into our intelligent production systems. And we expect that the resulting LLM-empowered intelligent production systems will achieve higher performance and better outcomes.

我們正在積極探索基於大語言模型的生成式人工智能應用如何提高長視頻行業的內容生產和推廣效率。我們的內部評估表明，生成式 AI 技術可以在多個業務場景中實施，包括簡化腳本頭腦風暴、創建和審查流程。我們已經開始將生成人工智能技術集成到我們的智能生產系統中。我們期望由此產生的 LLM 授權的智能生產系統將實現更高的性能和更好的結果。

By combining LLM applications with computer vision and audio models, we can gain deeper insights into video content, resulting in significantly improved quality and production efficiency of promotional images and videos for use in advertising and content marketing. Text-to-image and text-to-video applications are also valuable tools for generating pre-visualization during production preparation and for use in comic and animation production processes.

通過將 LLM 應用程序與計算機視覺和音頻模型相結合，我們可以更深入地了解視頻內容，從而顯著提高用於廣告和內容營銷的宣傳圖片和視頻的質量和生產效率。文本到圖像和文本到視頻的應用程序也是在製作準備期間生成預可視化以及用於漫畫和動畫製作過程的寶貴工具。

Next, I'd like to discuss the progress of iQIYI Lite and our overseas business. In Q1, iQIYI Lite maintained high-quality growth and once again recorded operating profits. For the ad-supported basic subscription package, the number of subscribers grew by over 70% sequentially and revenue grew by over 80% sequentially.

接下來，我想談談愛奇藝精簡版的進展和我們的海外業務。一季度，愛奇藝青春版保持高質量增長，再次錄得營業利潤。對於廣告支持的基本訂閱包，訂閱者數量環比增長超過 70%，收入環比增長超過 80%。

For the overseas business, driven by the outstanding performance of premium content, the membership revenue achieved solid growth in the quarter. The membership revenue growth rate exceeded 90% annually in regions including the U.S., Hong Kong, Japan and Mexico. The influence of original Chinese dramas continued to grow with revenue growth of 54% annually.

海外業務方面，在優質內容表現突出的帶動下，本季度會員收入實現穩健增長。美國、香港、日本、墨西哥等地區的會員收入年增長率超過90%。中國原創劇的影響力持續增長，收入每年增長54%。

The Knockout topped viewership rankings in multiple markets in Southeast Asia and North America, generating outstanding word of mouth and huge social buzz. Heading into Q2, we have a solid pipeline of premium titles, including key costume dramas and original Chinese dramas, which would drive the growth in both subscriber number and revenues.

《淘汰賽》在東南亞和北美多個市場的收視率排名中名列前茅，產生了出色的口碑和巨大的社會影響。進入第二季度，我們擁有豐富的優質內容，包括主要的古裝劇和原創中國劇，這將推動用戶數量和收入的增長。

Q1 represents our solid first step into the new stage of high-quality growth. After 13 years of development, our industry-leading brand influence is deeply embedded in the mindsets of users and industry peers. We are confident about the future prospects of the industry. And as a market leader, our business has strong resilience and promising growth potential. We treasure the trust and the support of our stakeholders. And we will keep pushing ourselves to unleash more potential and achieve high quality growth over the long term.

一季度是我們邁向高質量發展新階段的堅實第一步。經過13年的發展，我們行業領先的品牌影響力已深深植根於用戶和行業同行的心中。我們對行業的未來前景充滿信心。作為市場領導者，我們的業務具有強大的彈性和可觀的增長潛力。我們珍惜利益相關者的信任和支持。我們將繼續推動自己釋放更多潛力，實現長期高質量增長。

Now let me pass to Jun to go through our financial performance.

現在請 Jun 來談談我們的財務表現。

Thanks, Mr. Gong. And hello, everyone. Q1 was another record-setting quarter for us. We achieved historical highs across all key aspects. Not only we achieved all-time high in total revenues and membership services revenue, we also further improved our profitability, cash flow and balance sheet. The exceptional Q1 result was once again driven by the success of our original content strategy.

謝謝，龔先生。大家好。第一季度對我們來說是另一個創紀錄的季度。我們在所有關鍵方面都創下了歷史新高。我們不僅在總收入和會員服務收入方面創下歷史新高，我們還進一步改善了盈利能力、現金流和資產負債表。出色的第一季度業績再次得益於我們原創內容戰略的成功。

To be more specific, we booked RMB 8.3 billion in total revenues, hitting quarterly all-time high, up 15% annually and 10% sequentially. Membership services revenue continued to serve as the biggest growth driver with revenue exceeding RMB 5.5 billion, up 24% annually and 17% sequentially. Meanwhile, our advertising revenue and content distribution revenue, up by 5% and 16%, respectively, on annual basis.

更具體地說，我們的總收入為人民幣 83 億元，創下季度歷史新高，同比增長 15%，環比增長 10%。會員服務收入繼續成為最大的增長動力，收入超過 55 億元人民幣，同比增長 24%，環比增長 17%。同時，我們的廣告收入和內容分發收入分別同比增長 5% 和 16%。

Moving on to the cost and expenses. Our cost of revenues increased by 10% sequentially, among which the content cost increased by 7% sequentially. We launched more diversified premium original content in the first quarter as Q1 is a typical high season with Chinese New Year holidays. Then total operating expenses increased both annually and sequentially, mainly due to the increase in SG&A expenses. We devoted more resources in marketing as we believe this will amplify our content influence, increase user penetration and enhance the strong momentum generated by the slate of our original content.

繼續成本和費用。我們的收入成本環比增長了 10%，其中內容成本環比增長了 7%。我們在第一季度推出了更多元化的優質原創內容，因為第一季度是典型的農曆新年假期旺季。然後總運營費用每年和連續增加，主要是由於 SG&A 費用的增加。我們在營銷方面投入了更多資源，因為我們相信這將擴大我們的內容影響力，增加用戶滲透率並增強我們原創內容的強勁勢頭。

For Q1, we continued to strengthen our profit and cash flow-generating capability. Non-GAAP operating income exceeded RMB 1 billion, expanding for the sixth consecutive quarter. More importantly, free cash flow also exceeded RMB 1 billion. In Q1, we raised approximately USD 1.1 billion through follow-on and convertible notes offerings. We also repurchased approximately USD 340 million principal amount of the convertible notes due 2026.

對於第一季度，我們繼續加強我們的利潤和現金流產生能力。非美國通用會計準則營業收入超過人民幣 10 億元，連續第六個季度擴大。更重要的是，自由現金流也超過了10億元人民幣。第一季度，我們通過後續和可轉換票據發行籌集了約 11 億美元。我們還回購了本金約 3.4 億美元的 2026 年到期的可轉換票據。

As of the end of Q1, the company had cash, cash equivalents, restricted cash, short-term investments and long-term restricted cash included in prepayments and other assets of RMB 6.3 billion in total. This RMB 6.3 billion cash balance does not include the payment of around USD 1.2 billion to the paying agent to meet the company's repurchase obligation on April 1, 2023, for the convertible notes due 2025, which was classified as prepayments and other assets on the balance sheet. The repurchase has been completed in April 2023.

截至一季度末，公司現金、現金等價物、受限制現金、預付款項及其他資產中計入的短期投資和長期受限制現金共計63億元。這 63 億元人民幣的現金餘額不包括為履行公司於 2023 年 4 月 1 日對 2025 年到期的可轉換票據的回購義務向支付代理人支付的約 12 億美元，該款項被歸類為預付款項和余額中的其他資產床單。回購已於2023年4月完成。

To conclude, the first quarter results demonstrated the success of our high-quality growth strategy. We will continue to focus on execution and are confident in our ability to generate more value for our stakeholders in the long run.

總而言之，第一季度業績證明了我們高質量增長戰略的成功。我們將繼續專注於執行，並相信我們有能力從長遠來看為我們的利益相關者創造更多價值。

For detailed financial data for first quarter, please refer to our press release on our IR website. Now we'll open the floor for Q&A.

有關第一季度的詳細財務數據，請參閱我們在 IR 網站上發布的新聞稿。現在我們將開放問答環節。

(Operator Instructions) Your first question comes from Xueqing Zhang from CICC.

（操作員說明）您的第一個問題來自中金公司的張學慶。

(foreign language) I now will translate myself. And congratulations to the results. My question is related to content and content costs. What's the trend of company investment for this year and in the longer term? And what's the level of this year's production compared to previous years? Also, regarding to the content cost on the income statement, how does management think about the growth rate of this year and in the future? I'll ask, could management share with us highlights of the pipeline this year?

（外語）我現在自己翻譯。並祝賀結果。我的問題與內容和內容成本有關。今年和更長期的公司投資趨勢如何？與往年相比，今年的生產水平如何？另外，關於損益表上的內容成本，管理層如何看待今年和未來的增長率？我會問，管理層能否與我們分享今年管道的亮點？

[Interpreted] I would like to invite our CCO, Xiaohui, to answer your content-related question.

【解讀】有請我們的CCO小輝來回答你內容相關的問題。

[Interpreted] For this year and over the next ones, overall content costs will remain stable with marginal increase. And in the long run, we will maintain a reasonable content launch schedule and also a relatively stable content cost level. Secondly, we will continue to invest in high-quality original content. The numbers and portion of high-quality original content will increase in the future. And third, compared with last year, the number of titles going into production this year will also increase in order to meet the demand of head premium content inventory and the launch schedule.

[解讀]今年和未來幾年，整體內容成本將保持穩定，略有增加。而從長遠來看，我們將保持合理的內容髮佈時間表和相對穩定的內容成本水平。其次，我們會持續投入優質的原創內容。未來優質原創內容的數量和占比將會增加。第三，與去年相比，為了滿足頭部優質內容存量和開播檔期的需求，今年的投產片數也會有所增加。

For dramas, starting from Q2, we will start to launch this year's key costume dramas, including, for example, Story of Kunning Palace, Destined, The Lotus Casebook, Love You Seven Times and et cetera. We will also launch modern dramas, including Bionic, Bright Eyes In the Dark, As Husband As Wife, We Are Criminals and et cetera. For our variety shows, Q2 will mark a strong return of our original variety shows, including both returning seasons of hit shows and the debut of new titles. Investors may refer to the detailed content headline list, which was released last week during our iQIYI World Conference, for more details.

劇集方面，從Q2開始，我們將開始推出今年的重點古裝劇，包括《坤寧宮傳》、《緣分》、《荷花案》、《愛你七遍》等。我們還將推出現代劇，包括《仿生》、《黑暗中的明亮眼睛》、《相夫教子》、《我們是罪犯》等。對於我們的綜藝節目，第二季度將標誌著我們原創綜藝節目的強勢回歸，包括熱門節目的回歸季節和新節目的首次亮相。投資者可參考上週在愛奇藝世界大會期間發布的詳細內容標題列表，了解更多詳情。

[Interpreted] I will add on to what Xiaohui just mentioned and explain the finance perspective. He mentioned that content investment for -- content investment -- content cost from the financial perspective. And then we believe for this aspect, it will be remain stable with marginal increase. Over the past year and also including the Q1 in 2023, we can see the content of our original content has been increasing steadily. And it's been the main driver of high-quality growth over the past periods. And right now, because the original content proportion is relatively at a high percentage, so we anticipate going forward that the percentage of this will be relatively stable.

【解讀】我補充一下剛才小輝說的，從金融的角度來解釋一下。他從財務角度提到內容投資——內容投資——內容成本。然後我們相信在這方面，它將保持穩定並略有增加。在過去的一年裡，包括2023年第一季度，我們可以看到我們原創內容的內容一直在穩步增長。在過去的幾個時期，它一直是高質量增長的主要驅動力。而現在因為原創內容的比例比較高，所以我們預計未來這個比例會比較穩定。

Okay. For our original content discussion, we are entering into a very high-quality stage. And then we have defined a very systematic content launch schedule. So because of this, we can launch content more at ease and more on our own pace. And for now, we have (inaudible) producing the original content to broadcasting. And this is a very systematic programmatic approach that we're taking in managing our original content. So our funding is relatively stable and our need for capital is relatively stable as well. And from the financial aspect, we anticipate to see the continuous performance of the above-mentioned (inaudible)

好的。對於我們原創的內容討論，我們正在進入一個非常高質量的階段。然後我們定義了一個非常系統的內容髮佈時間表。因此，我們可以更輕鬆地按照自己的節奏發佈內容。現在，我們已經（聽不清）製作了用於廣播的原始內容。這是一種非常系統的程序化方法，我們正在採用這種方法來管理我們的原始內容。所以我們的資金比較穩定，我們對資金的需求也比較穩定。從財務方面來看，我們預計會看到上述（聽不清）的持續表現

Your next question comes from Lincoln Kong from Goldman Sachs.

你的下一個問題來自高盛的 Lincoln Kong。

(foreign language) The question is about the competition. So how do we see the competition landscape has changed or evolved in the current market? And over the next 2 to 3 years, will we expect any of the other peers will increase their investment in order to grab more market share in the space? And how do iQIYI can maintain their competitive edge in the overall industry?

（外語）問題是關於比賽的。那麼，我們如何看待當前市場中競爭格局的變化或演變？在接下來的 2 到 3 年裡，我們是否會期望其他同行增加投資以搶占該領域的更多市場份額？而愛奇藝如何在整個行業保持競爭優勢？

[Interpreted] We have been maintaining our market leadership for the past period. And right now, we think the entire content video industry has gone through a pretty structural change over the past period. The irrational investment style and the gregarious growth is no longer applicable. And our goal is to pursue profitability and the high-quality growth. This is also the consensus of the entire industry. And we all think it's a very key indicator.

[解讀]過去一段時間我們一直保持著市場領先地位。現在，我們認為整個內容視頻行業在過去一段時間內經歷了相當大的結構性變化。不合理的投資方式和群發式增長不再適用。我們的目標是追求盈利和高質量的增長。這也是整個行業的共識。我們都認為這是一個非常關鍵的指標。

In our 13 years of history, we have never been the most deep-pocketed player in the market. So we actually put more focus into original content. And we have seen very promising results and have seen excellent results as we have maintained a definite market leadership on this front and have built a very concrete competitive strength on this area. And going forward, we will continue to enforce our competitive strength to ensure more leadership over the long run.

在我們 13 年的歷史中，我們從來都不是市場上財力最雄厚的玩家。所以我們實際上更關注原創內容。我們看到了非常有希望的結果，並且看到了出色的結果，因為我們在這方面保持了明確的市場領導地位，並在這一領域建立了非常具體的競爭實力。展望未來，我們將繼續加強我們的競爭優勢，以確保長期保持領先地位。

So we also utilize technology to improve our overall content production process. For example, from the screening product to incubation to production to actually content launch. And entire cycle of the original production can be covered through our technology-driven tools. And using these tools, we can largely manage and also forecast our original content, so in order to secure very stable supply of our original content and also to increase the likelihood of blockbuster content moving forward.

因此，我們還利用技術來改進我們的整體內容製作流程。比如從篩選產品到孵化到製作再到真正的內容上線。我們的技術驅動工具可以涵蓋原始製作的整個週期。使用這些工具，我們可以在很大程度上管理和預測我們的原創內容，以便確保我們的原創內容非常穩定的供應，並增加大片內容向前發展的可能性。

And also, in the meantime, we will also utilize AIGC to improve our production efficiency and to improve our overall original content quality to also (inaudible) the content cost of that. So going forward, these are the tools and technology that we will use to enforce our market leadership position.

而且，與此同時，我們還將利用 AIGC 來提高我們的生產效率並提高我們的整體原創內容質量，以（聽不清）降低內容成本。因此，展望未來，這些是我們將用來鞏固市場領導地位的工具和技術。

Your next question comes from Daniel Chen with JPMorgan.

你的下一個問題來自摩根大通的 Daniel Chen。

(foreign language) So my question is related to the membership business. So could management provide some color on the outlook of the subscriber number in the second quarter and also longer term? Also, what -- how should we think about the overall growth for the membership service in this year and longer term? And also, what's our major strategy for membership business in 2023?

（外語）所以我的問題與會員業務有關。那麼管理層能否對第二季度和更長期的訂戶數量前景提供一些顏色？另外，我們應該如何考慮今年和更長期會員服務的整體增長？還有，我們2023年會員業務的主要戰略是什麼？

Our Senior Vice President of Membership Business, Mr. Duan, is answering this question.

我們的會員業務高級副總裁段先生正在回答這個問題。

[Interpreted] So for Q1, driven by strong original content, the Q1 membership services revenue and the subscriber base were record highs. It is expected that the Q2 membership services revenue and subscriber base will still have great year-on-year growth. And we have estimated that for Q2, the sub base and the revenue will be the best-performing second quarter in our history. From the quarter-on-quarter perspective, it is expected that the sub base and revenue in Q2 will have some sequential dip, mainly emphasizing the seasonal pattern after the Chinese New Year holiday.

[解讀]因此，對於第一季度，在強大的原創內容的推動下，第一季度會員服務收入和訂戶基數均創歷史新高。預計Q2會員服務收入和用戶基數仍將有較大幅度的同比增長。我們估計，對於第二季度，次基數和收入將是我們歷史上表現最好的第二季度。從環比來看，預計Q2分基數和營收會有一些環比下滑，主要強調春節假期後的季節性格局。

But overall, we're remaining optimistic at how the subscriber base and revenue outlook for this year, mainly because of the two factors I will be mentioning. The first reason is we are still very confident about the company's headlines and the content launch schedule for this year, especially during major windows such as summer vacations. Our highly stationed content production mechanism, strong operating and technical capability and also the top talent will entail us to steadily grow the number of high-quality content compared to last year.

但總的來說，我們對今年的訂戶基礎和收入前景持樂觀態度，主要是因為我將提到的兩個因素。第一個原因是我們對公司的頭條和今年的內容上線排期還是很有信心的，尤其是在暑假等大窗口期。我們高度駐紮的內容生產機制、強大的運營和技術能力以及頂尖的人才將使我們的優質內容數量與去年相比穩步增長。

The second factor is we are seeing the proportion of annual subscribers increase significantly year-on-year. Although it might not have the short-term uplift effect on ours, but the long-term benefit is significant as it represents longer and closer relationships with our subscribers. And this will drive the annual -- and also improve the annual revenue performance and also improve the cash flow covenant.

第二個因素是我們看到年度訂閱者的比例同比顯著增加。雖然它可能不會對我們產生短期提升效果，但長期利益是顯著的，因為它代表了與我們的訂戶的更長期和更密切的關係。這將推動年度 - 並改善年度收入績效並改善現金流契約。

And also, the second point is the lifetime value and the long-term retention rate of our various memberships have also increased. And also, that we saw strong growth from both subscribers with large-screen privileges and also iQIYI Lite ad-supported basic subscriber packages. The main strategy for our membership business this year is to reach high-quality growth, which means maximizing user experience and in return, strengthening our subscriber base, LTV and also ARM.

而且，第二點是我們各種會員的終身價值和長期保留率也有所提高。此外，我們還看到擁有大屏幕特權的訂閱者和愛奇藝精簡版支持廣告的基本訂閱者套餐的強勁增長。今年我們會員業務的主要戰略是實現高質量增長，這意味著最大限度地提高用戶體驗，作為回報，加強我們的用戶基礎、LTV 和 ARM。

The next question comes from Alicia Yap with Citigroup.

下一個問題來自花旗集團的 Alicia Yap。

(foreign language) Can management share with us what is your view of brand advertising outlook this year? And what does the ad demand for each major stock vertical industry look like? In addition, wondering if you have seen any meaningful difference in terms of demand sentiment between brand assets and performance ads.

(外語) 管理層能否與我們分享您對今年品牌廣告前景的看法？而各大存量垂直行業的廣告需求又是怎樣的呢？此外，想知道您是否發現品牌資產和效果廣告在需求情緒方面存在任何有意義的差異。

[Interpreted] The brand -- I will talk about brand ads and performance ads separately. So for brand advertising, the performance of that is very closely correlated with the macroeconomic development. And we are seeing the overall ad market will recover with gradual recovery of China's economy, especially the post-COVID period. But the reflection in the advertising market will lag by 1 or 2 quarters. Actually, after April, we are seeing gradual recovery of brand advertising. And we are still very cautiously optimistic about the overall brand advertising margin for this year. And in the first half of the year, the consumption is still gradually recurring. So we expect to see more evidence of recovery in the second half of this year.

【解讀】品牌——我把品牌廣告和效果廣告分開說。所以對於品牌廣告來說，其表現與宏觀經濟發展有著非常密切的關係。我們看到整個廣告市場將隨著中國經濟的逐步復甦而復蘇，尤其是後 COVID 時期。但廣告市場的反映會滯後一兩個季度。實際上，在四月之後，我們看到品牌廣告逐漸恢復。我們對今年的整體品牌廣告利潤率仍然非常謹慎樂觀。而上半年，消費還在逐步回暖。因此，我們預計今年下半年會看到更多複蘇跡象。

And so overall, we are very confident -- still very confident in the long-term development of the brand advertising market as iQIYI is one of the platforms with the highest user quality, the strongest willingness and ability to pay in the China Internet industry, which can effectively help advertisers to enhance the brand influence and also sales conversion. Looking at the subsectors, FMCG, retail, travel, entertainment and also health industry have recovered the fastest so far. As Q2 is the peak season for FMCG and food and beverages and (inaudible) industry, so we expect Q2 should have positive growth, both annually and sequentially. And at the same time, Q2 also has key marketing campaigns such as June 18. So the ad budget of some e-commerce platforms should also expect to see some increase to some extent.

所以總的來說，我們非常有信心——對品牌廣告市場的長期發展還是非常有信心的，因為愛奇藝是中國互聯網行業用戶質量最高、付費意願和支付能力最強的平台之一，可有效幫助廣告主提升品牌影響力和銷售轉化率。從細分行業來看，快消品、零售、旅遊、娛樂和健康行業是迄今為止恢復最快的行業。由於第二季度是快速消費品和食品飲料以及（聽不清）行業的旺季，因此我們預計第二季度每年和環比都將實現正增長。同時Q2還有6月18日等重點營銷活動，所以部分電商平台的廣告預算應該也會有一定程度的增長。

We are optimistic about the long-term prospects of the new energy vehicle sector and also the home furnishing sector. The performance ad market will gradually recover in 2023 with moderate recovery in the domestic market and especially for iQIYI, in particular, because we have optimized our algorithm and also increased our sales efforts. So our Q1, our quarterly performance was actually above the market industry. And also, looking into the future quarters, we expect to see strong growth in Q3 as well. Overall, the performance ad market is currently showing pretty big budget growth in the areas such as online services, game launches, e-commerce, travel and localized stuff.

我們看好新能源汽車行業和家居行業的長期前景。效果廣告市場在2023年會逐漸回暖，國內市場會適度回暖，尤其是愛奇藝，特別是因為我們優化了算法，也加大了銷售力度。所以我們的第一季度，我們的季度業績實際上高於市場行業。而且，展望未來幾個季度，我們預計第三季度也會出現強勁增長。總體而言，效果廣告市場目前在在線服務、遊戲發布、電子商務、旅遊和本地化內容等領域顯示出相當大的預算增長。

I'll now hand the conference back to Ms. Yu for closing remarks. Over to you, ma'am.

我現在將會議交還給餘女士作閉幕詞。交給你了，女士。

Thank you. And please note that the previous discussion on Q2 is forward-looking and only represents our current view based on current data points. And I would like to thank again for everyone's participation on the call today. And please do not hesitate to contact us if you have further questions. Thank you, everyone, and we'll see you next quarter.

謝謝。請注意，之前關於第二季度的討論是前瞻性的，僅代表我們基於當前數據點的當前觀點。我想再次感謝大家參加今天的電話會議。如果您有其他問題，請隨時與我們聯繫。謝謝大家，我們下個季度見。

Thank you.

謝謝。

Thank you.

謝謝。

Thank you. Bye-bye.

謝謝。再見。

Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.

謝謝。我們今天的會議到此結束。感謝您的參與。您現在可以斷開連接。

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]

[此記錄中標記為 [已翻譯] 的部分由現場通話中的口譯員說出。]