iQIYI Inc (IQ) 2023 Q3 法說會逐字稿

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

感謝您的耐心等待，歡迎參加愛奇藝 2023 年第三季財報電話會議。 （操作員指示）現在會議交給愛奇藝投資者關係總監張宇。請繼續。

Thank you, operator. Hello, everyone, and thank you for joining iQIYI's Third 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，接線生。大家好，感謝您參加愛奇藝2023年第三季財報電話會議。該公司的業績於今天稍早發布，可在該公司的投資者關係網站 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; Mr. Youqiao Duan, Senior Vice President of our Membership business; and Mr. Xianghua Yang, Senior Vice President of Movies and Overseas business.

今天參加電話會議的有：我們的創辦人、董事兼執行長龔宇先生；王軍先生，我們的財務長；王曉輝先生，我們的 CCO、首席內容長；劉文峰先生，我們的技術長；段友橋先生，會員業務資深副總裁；楊向華先生，電影及海外業務資深副總裁。

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

龔先生將簡要介紹公司的業務運作和亮點，隨後由君介紹財務狀況。在準備好的發言後，管理團隊將參加問答環節。

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 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 statements, 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做出的前瞻性陳述。前瞻性陳述受到風險和不確定性的影響，可能導致實際結果有所不同與我們目前的預期相差很大。潛在風險和不確定性包括但不限於我們向 SEC 公開提交的文件中概述的風險和不確定性。除適用法律要求外，愛奇藝不承擔更新任何前瞻性聲明的義務。

I will now pass on to Mr. Gong. Please go ahead.

下面請龔先生介紹一下。請繼續。

Hello, everyone. Thank you for joining us today. Our focus of the quarter remains firmly on generating high-quality growth, achieving strong results in both revenues and profits.

大家好。感謝您今天加入我們。我們本季的重點仍然是實現高品質成長，在收入和利潤方面取得強勁成果。

Our total revenues grew 7% year-on-year while profit performance was far more remarkable. Gross profit and the non-GAAP operating profit had annual growth of 23% and 71%, respectively. The impressive financial results demonstrate the strength of our robust operating leverage anchored by our exceptional content, which serves as our core competitive advantage.

我們的總營收年增7%，而獲利表現則更為出色。毛利和非公認會計原則營業利潤分別年增23%和71%。令人印象深刻的財務表現證明了我們以卓越內容為基礎的強大營運槓桿的實力，這是我們的核心競爭優勢。

iQIYI is a signature brand for top-tier content. According to Enlightent data, we have been leading the industry in drama viewership share for 7 consecutive quarters. Our original dramas remained as the key driver for content supply and revenue contribution. Meanwhile, a diverse array of high-quality titles premiered were highly acclaimed by users. Notably, The Lotus Casebook was the 10th drama in our history to break the 10,000 popularity index score.

愛奇藝是頂級內容的標誌性品牌。根據Enlightent數據顯示，我們的電視劇收視份額已連續7個季度領先產業。我們的原創電視劇仍然是內容供應和收入貢獻的主要驅動力。同時，多款精品上線，受到用戶好評。值得注意的是，《蓮花案簿》是我們歷史上第十部人氣指數破萬的電視劇。

During the quarter, membership services revenue grew by 19% annually, mainly driven by a 12% annual increase in ARM. Two key factors contributed to the revenue growth. Firstly, empowered by the high appeal of our exclusive content, we have reduced the discounts provided for membership purchases via direct and channel sales. Our content is compelling enough to drive purchasing decisions in its own. Secondly, we have upgraded our member benefits and services, resulting in increased value perception among our members and boosted membership retention rate.

本季度，會員服務收入年增 19%，主要得益於 ARM 年成長 12%。有兩個關鍵因素推動了收入成長。首先，由於我們獨家內容的高吸引力，我們減少了透過直銷和通路銷售提供的會員購買折扣。我們的內容夠引人注目，足以推動購買決策。二是升級會員權益與服務，提升會員價值認知，提升會員留任率。

The enhanced member benefits encompass a wide range of upgrades. For example, optimizing the viewing experience from mobile devices to large-screen TVs, members can now enjoy content in stunning 4K, 8K and even indulge in our proprietary eXave MAX to enjoy theater-quality audiovisual experience. The audio experience is equally enhanced with a shift from ordinary stereo sound to the immersive and captivating proprietary, industry-leading IQHimero Sound.

增強的會員福利包括廣泛的升級。例如，優化從行動裝置到大螢幕電視的觀賞體驗，會員現在可以享受令人驚嘆的4K、8K內容，甚至沉迷於我們專有的eXave MAX，享受戲院品質的視聽體驗。從普通立體聲轉變為身臨其境、引人入勝的行業領先的專有 IQHimero 聲音，音訊體驗同樣得到增強。

And our member perks don't stop there. We go beyond the online realm, extending our offerings to exciting offline experiences such as exclusive concerts. These upgrades have transformed entertainment, providing users a diversified, personalized and an immersive entertainment experiences. We are very pleased to see users' appreciation for our content and services translate into ARM growth.

我們的會員福利還不止於此。我們超越了線上領域，將我們的產品擴展到令人興奮的離線體驗，例如獨家音樂會。這些升級改變了娛樂方式，為使用者提供了多元化、個人化、沉浸式的娛樂體驗。我們很高興看到用戶對我們的內容和服務的讚賞轉化為 ARM 的成長。

Alongside membership services, advertising revenue was our second growth driver during the quarter. Our premium content and enhanced marketing capabilities drove up advertising revenue by 34% annually and 12% sequentially. Both brand ads and the performance ads booked annual and sequential growth. Entering into Q4, we are cautiously monitoring the macro environment's impact on the advertising market, where we will upgrade our marketing capabilities to weather potential challenges as we continue to seek out new growth opportunities in the future.

除會員服務外，廣告收入是我們本季的第二個成長動力。我們的優質內容和增強的行銷能力使廣告收入每年增長 34%，環比增長 12%。品牌廣告和成效廣告均實現年度和環比成長。進入第四季度，我們將謹慎關注宏觀環境對廣告市場的影響，提升行銷能力以應對潛在的挑戰，同時繼續尋找未來新的成長機會。

Now let's dive deeper into the performance of our core business segments, starting with membership services. In the third quarter, membership services revenue exceeded RMB 5 billion for the second time in our history, representing a strong annual increase of 19%, driven primarily by ARM growth.

現在，讓我們從會員服務開始，更深入地了解我們核心業務部門的績效。第三季度，會員服務收入史上第二次突破人民幣 50 億元，較去年同期強勁成長 19%，主要得益於 ARM 的成長。

We would like to reiterate that the primary goal for our membership services is to drive long-term and sustainable revenue growth. Membership revenue is driven by three components, namely ARM, subscriber lifetime and subscriber base. ARM and subscriber lifetime are our current key focus in driving the long-term economic value of membership services.

我們想重申，我們會員服務的首要目標是推動長期、可持續的收入成長。會員收入由三個組成部分驅動，即 ARM、訂閱者生命週期和訂閱者基礎。 ARM 和用戶生命週期是我們目前推動會員服務長期經濟價值的重點。

In the third quarter, ARM reached RMB 15.54, up 12% annually and 5% sequentially. The average daily subscriber increased by 6% annually to 107.5 million. The current ARM level in our view is still very affordable compared with the price of other consumer products. We will continue to drive sustainable ARM growth over the long term backed by several factors.

第三季ARM股價達15.54元人民幣，較去年同期上漲12%，較上季上漲5%。平均每日訂閱用戶每年成長 6%，達到 1.075 億。目前的ARM水準在我們看來與其他消費產品的價格相比還是非常實惠的。在多種因素的支持下，我們將繼續推動 ARM 的長期永續成長。

First, as we just mentioned, membership purchase decisions are increasingly being made based on content and the membership -- and member benefits rather than discounts. Very importantly, our ability in consistently delivering high-quality premium content will be further improved.

首先，正如我們剛才提到的，會員購買決策越來越多地基於內容和會員資格以及會員福利而不是折扣。非常重要的是，我們持續提供優質優質內容的能力將會進一步提升。

Second, our member experience offers compelling value for the money. We will continue enhancing our offering with new value-added services that increase members' value perception and willingness to pay, such as Express, Packages, concerts and merchandise offers. Finally, we see significant potential to further upgrade existing Gold members to Platinum and Star Diamond membership tiers, which command a higher price yet offer more privileges.

其次，我們的會員體驗物有所值。我們將繼續透過新的增值服務來增強我們的產品，以提高會員的價值認知和支付意願，例如快遞、套餐、音樂會和商品優惠。最後，我們看到了將現有金卡會員進一步升級為白金卡和星鑽卡會員等級的巨大潛力，這些等級的價格更高，但提供更多特權。

Our member privileges and benefits have proven highly attractive. And we expect their appeal to remain strong. For example, the Express Packages is one of the content privileges we have developed for members, which enable subscribers to redeem their member points to unlock early access to finale episodes of hit drama series. This model was applied to two hit dramas in the third quarter, attracted over 10 million participating members, demonstrating the significant value perception attached to these benefits.

事實證明，我們的會員特權和福祉極具吸引力。我們預計它們的吸引力將保持強勁。例如，特快禮包是我們為會員開發的內容特權之一，訂閱者可以兌換會員積分來搶先觀看熱門劇集的大結局。該模式在第三季的兩部熱門劇中得到應用，吸引了超過1000萬的會員參與，顯示了這些好處所帶來的巨大價值感知。

In line with our strategy to foster deeper connections between our loyal members and our premium content through IP derivatives, cloud concerts are another important component of membership offering. We held the Mysterious Lotus Casebook-themed concert, which created immersive excitement. Lastly, we have developed a dedicated e-commerce platform for merchandise related to our IPs. Members can use their member points to pay for these goods in full or in part.

根據我們透過 IP 衍生性商品在忠實會員和優質內容之間建立更深層聯繫的策略，雲端音樂會是會員服務的另一個重要組成部分。我們舉辦了《神秘蓮花案例》主題音樂會，營造出身臨其境的興奮感。最後，我們為與我們的智慧財產權相關的商品開發了一個專門的電子商務平台。會員可以使用其會員積分全額或部分支付這些商品。

As discussed repeatedly, our primary focus is on enhancing member loyalty, retention and the lifetime value through our membership privileges and benefits. Our loyalty program is closely tied to the duration of membership. And we strive to improve the service experience and value perception, especially for our long-term members.

正如反覆討論的那樣，我們的主要重點是透過我們的會員特權和福利來提高會員忠誠度、保留率和終身價值。我們的忠誠度計劃與會員資格期限密切相關。我們努力改善服務體驗和價值感知，特別是對我們的長期會員。

For instance, users who opt to auto-renewal, choose long-term plans or become premium members are granted elevated benefits, including faster accumulation of member points that can be redeemed for content-related perks and merchandise. As a result, we observed meaningful year-over-year growth in both the quantity and proportion of annual plan subscriptions in the third quarter.

例如，選擇自動續約、選擇長期計畫或成為高級會員的用戶將獲得更高的福利，包括更快地累積會員積分，這些積分可以兌換為內容相關的福利和商品。因此，我們觀察到第三季年度計畫訂閱的數量和比例均有顯著的年成長。

Moving on to content. Content is our core competitive advantage. iQIYI online dramas continue to be the main driver in terms of content supply and the revenue contribution, accounted for over 60% of the key dramas launched in the third quarter.

繼續內容。內容是我們的核心競爭優勢。愛奇藝網劇繼續成為內容供應和收入貢獻的主要推動力，佔第三季推出的重點劇的60%以上。

For this year's summer season, our drama lineup covered diverse genres such as ancient costume, reality and suspense. The ancient costume detective drama, The Lotus Casebook, became the dark horse hit of the summer. It was our 10th drama to break our 10,000 popularity index score. And the drama's theme concert we held generated over 230 trending search topics and attracted over 320 million likes. We are happy to see the significant long-lasting impact with this series as it continued to dominate the Enlightent list even after its series finale.

今年暑期檔，劇集陣容涵蓋古裝、現實、懸疑等多種類型。古裝探案劇《蓮花案簿》成為暑期檔黑馬。這是我們第十部人氣指數破萬的電視劇。我們舉辦的該劇主題演唱會，產生了超過230個熱門搜尋話題，吸引了超過3.2億的讚。我們很高興看到該系列產生了重大而持久的影響，因為即使在系列結局之後，它仍然繼續在啟蒙清單中佔據主導地位。

Other key dramas such as ancient costume suspense series, My Journey to You; Imperfect Victim, a series focused on social issues; and criminal suspense series, The Lost 11th Floor, were all well-received by audiences and reflect the quality and the depth of our drama lineup.

其他重點劇如古裝懸疑劇、《我的西遊記》等；不完美的受害者，關注社會議題的系列；犯罪懸疑劇《失落的11樓》都受到觀眾好評，體現了我們影集陣容的品質和深度。

For variety shows, sequels to our classic IPs, such as the third season of The Big Band and Housework Talent, made a strong comeback. The Big Band 3 achieved outstanding performance in both advertising and membership revenue. We also launched diverse, innovative, new IPs, including our very first variety show and drama crossover, As You Wish: Love You Seven Times; cultural variety show, Glory is Back: Beijing; and cuisine show, Let's BBQ!, which attracted a wide variety of users.

綜藝節目方面，《樂團大咖》第三季、《家事達人》等經典IP續集強勢回歸。 Big Band 3在廣告和會員收入方面都取得了出色的表現。我們也推出了多元化、創新的新IP，包括我們的第一部綜藝和戲劇跨界節目《如你所願：愛你七次》；文化綜藝節目《榮耀歸來：北京》；美食節目《Let's BBQ!》吸引了廣泛的用戶。

On a separate note, we are also making good progress in realizing the commercial potential of our premium IPs. Notably, sales of The Lotus Casebook merchandise exceeded RMB 18 million. We have also introduced merchandise based on our original children's IPs, spanning the full range of children's products, including daily life, learning and offline entertainment.

另一方面，我們在實現優質智慧財​​產權的商業潛力方面也取得了良好進展。其中，《蓮花案例》商品銷售額突破1,800萬元。我們也推出了以原創兒童IP為基礎的商品，涵蓋日常生活、學習、線下娛樂等全線兒童產品。

Heading into Q4 and next year. We are committed to deliver diversified and high-quality content on continuous basis. We have a highly anticipated slate of dramas. Aside from the already launched hit titles such as Romance on the Farm, Story of Kunning Palace and The Fearless Season 1, we also prepared a stellar drama pipeline to be released. This includes major ancient costume titles, A Journey to Love and Chinese Paladin 4, as well as modern day-themed dramas like Detective Chinatown Season 2 and Like A Flowing River Season 3 and The Lonely Warrior.

進入第四季和明年。我們致力於持續提供多元化、高品質的內容。我們有一系列備受期待的戲劇。除了已經推出的《農場浪漫》、《坤寧宮故事》、《霍元甲第一季》等熱門劇外，我們還準備了一批優秀的劇集待上映。其中包括主要古裝劇《愛情之旅》和《仙劍奇俠傳4》，以及現代主題劇，如《唐人街探案第二季》、《流水般的河流》第三季和《孤獨的戰士》。

For variety shows, our pipeline covers a wide range of themes, including our first original physical competition show, We Never Stop. And our hit show, Become a Farmer, will introduce its first spin-off show, Hi! Young Farmers. We also have an exciting lineup of children's cartoon and animation. For original children's cartoon, we are going to debut the second half of Deer Squad Season 3 and a brand-new title, Mega Meow. For original animation, The Great Ruler and Against the Gods are still trending while new IPs such as sci-fi series, The Abyss Game, and the comic adaptation, Love Magic Grocery, are set for release.

在綜藝節目方面，我們的節目涵蓋了廣泛的主題，包括我們的第一個原創體育競賽節目《我們永不止步》。我們的熱門節目《成為農民》將推出第一部衍生節目《嗨！青年農民。我們還有一系列令人興奮的兒童卡通和動畫。在原創兒童動畫片方面，我們將推出《鹿特攻隊》第三季的後半部以及全新的作品《超級喵》。原創動畫方面，《大主宰》、《逆天》仍是熱門，科幻系列《深淵遊戲》、漫畫改編《愛情魔法雜貨店》等新IP也即將推出。

Moving on to advertising business. We are delighted to see accelerated recovery during the third quarter. Total advertising revenue reached RMB 1.7 billion, up 34% annually and 12% sequentially. Revenue from brand ads recorded double-digit growth both annually and sequentially, driven by several factors. Notably, our premium original content, such as Big Band Season 3 and Love You Seven Times, attracted stronger advertising demand.

轉向廣告業務。我們很高興看到第三季的加速復甦。廣告總收入達到人民幣17億元，較去年成長34%，較上季成長12%。在多種因素的推動下，品牌廣告收入較去年同期和季比均錄得兩位數成長。值得注意的是，我們的優質原創內容，例如《大樂隊第三季》和《愛你七次》，吸引了更強勁的廣告需求。

Advertising budgets allocated towards variety shows and dramas increased by 67% and 28% year-on-year, respectively. Breaking it down by sector, we saw increased ad budget from food and beverage while sectors like Internet services, transportation and health care also recovered.

綜藝節目和電視劇的廣告預算較去年同期分別成長67%和28%。按行業細分，我們看到食品和飲料的廣告預算增加，而網路服務、交通和醫療保健等行業也有所復甦。

Revenue from performance ads recorded strong annual revenue growth of over 78%, mainly due to two factors. First, targeted and efficient operations gained higher budget share from sectors such as Internet services, e-commerce and games. Second, the effective use of generative AI enhanced ad creation and ROI.

效果廣告收入實現了超過 78% 的年度強勁成長，主要歸因於兩個因素。首先，精準高效的營運從網路服務、電子商務、遊戲等行業獲得了更高的預算份額。其次，有效利用生成式人工智慧增強了廣告創作和投資報酬率。

Looking ahead to Q4, we are cautiously monitoring the overall advertising market. We acknowledge that the consumption sentiment takes time to fully bounce back, creating a lagging effect on brand advertising business. Nevertheless, based on our unparalleled content quality and extensive user profile, we are the go-to platform for advertisers seeking optimal advertising opportunities. For performance ads, we are optimistic on sectors such as Internet services, e-commerce and short dramas. And we will continue to fine-tune our algorithm and leverage generative AI to enhance ad creation and maximize efficiency.

展望第四季度，我們正在謹慎監控整個廣告市場。我們承認，消費情緒需要一段時間才能完全恢復，這對品牌廣告業務產生了滯後效應。儘管如此，基於我們無與倫比的內容品質和廣泛的用戶檔案，我們是廣告商尋求最佳廣告機會的首選平台。效果廣告方面，我們看好網路服務、電商、短劇等行業。我們將繼續微調我們的演算法並利用生成式人工智慧來增強廣告創作並最大限度地提高效率。

Moving on to technology and products. Our commitment is centered around fostering technology innovation to empower the entertainment ecosystem, creating value for our users and content creators. Firstly, we harness the power of technology to elevate the entertainment experience for our users. And secondly, we empower our content creators by equipping them with the latest tools and resources to improve the quality and the efficiency of their creations.

轉向技術和產品。我們的承諾是圍繞著促進技術創新來增強娛樂生態系統的能力，為我們的用戶和內容創作者創造價值。首先，我們運用科技的力量提升使用者的娛樂體驗。其次，我們為內容創作者提供最新的工具和資源，以提高他們的創作品質和效率。

Our focus on leveraging AI to enhance the user experience has yielded significant progress. Notably, we have pioneered the use of generative AI in three key search categories: character search, plot search and actor search. By applying advanced content analysis, we are now capable of automatically generating video clips and drama highlights. This cutting-edge technology has been implemented across hundreds of core dramas on our platform, greatly improving search accuracy and user engagement. Users directed to a drama through AI plot search spend an average of 40% more times viewing the content.

我們專注於利用人工智慧來增強用戶體驗，並取得了重大進展。值得注意的是，我們率先在三個關鍵搜尋類別中使用生成式人工智慧：角色搜尋、情節搜尋和演員搜尋。透過應用先進的內容分析，我們現在能夠自動產生影片剪輯和戲劇精彩片段。這項尖端技術已在我們平台上的數百部核心劇集中得到應用，大大提高了搜尋準確性和用戶參與度。透過 AI 情節搜尋定向到電視劇的用戶觀看內容的次數平均增加 40%。

One more exciting user experience optimization is the introduction of Karaoke Mode in Big Band 3. This innovative and interactive feature seamlessly integrates some lyrics into the onscreen display during band performance sessions, allowing viewers to sing along and creating a more immersive experience. We saw meaningful viewer engagement and time spent increase by users activating this feature.

更令人興奮的用戶體驗優化是Big Band 3中引入的卡拉OK模式。這項創新的互動功能在樂團表演期間將一些歌詞無縫整合到螢幕顯示中，讓觀眾跟著唱，創造更身臨其境的體驗。我們發現，在使用者啟動此功能後，觀看者的參與度和花費的時間都增加了。

In terms of content production and operations, we are promoting the application of generative AI in various use cases, driving the rapid technology development of the video industry. Now the role of generative AI is evolving from a mere embedded tool to a copilot mode in every phase of workflow. By leveraging this transformative technology, we are empowering creators in every aspect of their work, from planning and development to production and promotion of content. This approach not only enhances efficiency but also unlocks new potentials.

在內容生產和營運方面，我們正在推動生成式人工智慧在各種場景中的應用，推動視訊產業技術的快速發展。現在，生成式人工智慧的角色正在從單純的嵌入式工具演變為工作流程每個階段的副駕駛模式。透過利用這種變革性技術，我們在內容的規劃和開發、製作和推廣等各個方面為創作者提供支援。這種方法不僅提高了效率，也釋放了新的潛力。

We are seeing great initial results. For example, we use generative AI producing low-cost, high-quality posters and videos to showcase our content. We have applied this technology in promoting our key programs such as Destined, The Big Band Season 3, et cetera. In addition, we are expanding the reach and influence of ads by using generative AI.

我們看到了很好的初步成果。例如，我們使用生成式人工智慧製作低成本、高品質的海報和影片來展示我們的內容。我們已將這項技術應用於推廣我們的重點節目，例如《命中註定》、《大樂隊第三季》等。此外，我們也利用生成式人工智慧來擴大廣告的覆蓋範圍和影響力。

Finally, for our business performance in regions outside of Mainland China. Our premium content continued to win acclaim from overseas users and drove steady growth in overseas membership revenue. In the third quarter, membership revenue in Japan, Korea, the U.S. and Hong Kong all increased by over 50% annually. The solid performance was driven by the rising influence of our high-quality C-pop. Powered by a number of popular titles, the total viewing time for C-dramas on our overseas platform increased by 23% annually and 33% sequentially in the quarter.

最後，我們在中國大陸以外地區的業務表現。優質內容持續贏得海外用戶好評，帶動海外會員營收穩定成長。第三季度，日本、韓國、美國和香港的會員收入年增均超過50%。我們的高品質華語流行音樂的影響力不斷上升，推動了強勁的表現。在多部熱門劇的推動下，海外平台的國劇總觀看時長年增23%，本季較上季成長33%。

My Journey to You achieved the highest revenue on our overseas platform during its broadcasting period. Meanwhile, The Lotus Casebook's popularity extended beyond Mainland China. And it topped our overseas platform in both total video views and viewing time in the third quarter and ranked #1 in total video views in Southeast Asia, East Asia and the North American markets.

《我的旅程》在海外平台播出期間取得了最高收入。同時，《蓮花案例》的受歡迎程度也超越了中國大陸。第三季影片總觀看次數和觀看時間都名列海外平台第一，在東南亞、東亞和北美市場影片總觀看次數排名第一。

For the fourth quarter, we will continue to drive high-quality growth. In addition to enhancing platform cooperation and channel expansion, we are dedicated to bolster our content pipeline to capitalize on the strong momentum of Chinese dramas while introducing localized dramas in Thailand, Malaysia and Taiwan to further expand our influence.

四季度，我們將繼續推動高品質發展。除了加強平台合作和通路拓展外，我們也致力於加強內容儲備，利用中國電視劇的強勁勢頭，同時引入泰國、馬來西亞和台灣的本土電視劇，進一步擴大我們的影響力。

In summary, we have accomplished strong results in the third quarter with emphasis on delivering high-quality growth. As we look ahead, our dedication to enhancing user experience, strengthening competitive edge in original content, maximizing member value and harnessing the power of advanced AI technology remains steadfast. Going into next year, we will cautiously increase investment in both our core and innovative businesses, establishing a solid foundation for sustainable long-term growth.

綜上所述，我們第三季取得了強勁的業績，重點是實現高品質成長。展望未來，我們將堅定不移地致力於提升用戶體驗、增強原創內容競爭優勢、最大化會員價值以及利用先進人工智慧技術的力量。進入明年，我們將審慎加大對核心業務和創新業務的投入，為可持續的長期成長奠定堅實的基礎。

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

現在請王軍介紹一下我們的財務表現。

Thanks, Mr. Gong, and hello, everyone. We have delivered strong Q3 results. As you can see, the growth of ARM drove the growth of the membership services revenues, profits and the free cash flow. And our operating leverage led to margin expansion on a year-over-year basis. This demonstrates the defensibility and scalability of our business model. Now let me walk you through the key numbers.

謝謝宮總，大家好。我們第三季業績強勁。正如您所看到的，ARM 的成長帶動了會員服務收入、利潤和自由現金流的成長。我們的營運槓桿導致利潤率年增。這證明了我們業務模式的防禦性和可擴展性。現在讓我帶您了解關鍵數字。

The total revenue increased by 7% annually to RMB 8 billion, driven by growth in both membership services revenue and online advertising services revenue. The membership services revenue exceeded RMB 5 billion, up 19% annually, primarily driven by the increase in ARM. Online advertising revenues reached RMB 1.7 billion with annual growth rate of 34%. This was fueled by the growth in both brand and performance ads with performance ads showing stronger growth momentum.

受會員服務收入和網路廣告服務收入成長的推動，總收入按年增長7%至人民幣80億元。會員服務收入超過50億元人民幣，較去年成長19%，主要受ARM成長帶動。網路廣告收入達17億元人民幣，年增率為34%。這是由品牌廣告和效果廣告的成長所推動的，效果廣告顯示出更強勁的成長動能。

Now moving to the cost. Our quarterly cost and expenses remained relatively stable year-over-year. Total cost of revenue was RMB 5.8 billion, up 2% annually. Content cost as a component of cost of revenues was RMB 4.2 billion, down 3% annually. Total operating expenses were RMB 1.4 billion, down 2% annually.

現在轉向成本。我們的季度成本和費用比去年同期保持相對穩定。總收入成本為人民幣58億元，較去年同期成長2%。內容成本佔收入成本的比例為人民幣42億元，較去年同期下降3%。總營業費用為人民幣14億元，較去年同期下降2%。

Turning to profits and cash flows. The non-GAAP operating income reached RMB 895 million, up 71% annually, positive for 7 consecutive quarters. The free cash flow reached RMB 826 million and has been positive for 5 consecutive quarters, representing our enhanced cash-generating capabilities. As of the end of Q3, the company had cash, cash equivalents, restricted cash, short-term investments and long-term restricted cash included in prepayments and other assets, the total of RMB 7.2 billion.

轉向利潤和現金流。非美國通用會計準則營業收入達人民幣8.95億元，較去年成長71%，連續7季為正。自由現金流達8.26億元，連續5季為正，現金產生能力增強。截至三季末，公司預付款項所包含的現金、現金等價物、限制性現金、短期投資及長期限制性現金等資產合計72億元。

To conclude, our Q3 results reflected the strong execution of our strategy and a steady progress in driving high-quality growth. We are dedicated to delivering long-term value to all of our stakeholders. For detailed financials, please refer to our press release on our IR website. Now we will open the floor for Q&A.

綜上所述，三季業績反映了公司策略執行力強、推動高品質發展穩步推進。我們致力於為所有利害關係人提供長期價值。有關詳細財務信息，請參閱我們在 IR 網站上的新聞稿。現在我們將開始問答環節。

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

（操作員指示） 你的第一個問題來自中金公司張學慶。

(foreign language) Congratulations on another strong quarter. My question is about ARM. The ARM has quite a solid growth this quarter. So what's your outlook for ARM in the fourth quarter and next year? And also, could you give us more color on how to improve the perceived value and the loyalty of membership?

（外語）祝賀又一個強勁的季度。我的問題是關於ARM的。 ARM 本季的成長相當穩健。那麼您對 ARM 第四季和明年的展望如何？另外，您能否給我們更多關於如何提高會員感知價值和忠誠度的資訊？

Thank you. Youqiao will answer this question.

謝謝。優橋來回答這個問題。

Yes, Senior VP of Membership business, Duan Youqiao, will answer this question. Please go ahead.

是的，會員業務高級副總裁段友橋將為您解答這個問題。請繼續。

(foreign language)

（外語）

[Interpreted] Yes. For Q3, the ARM exceeded RMB 15, it's within our expectations. And then this is because our progress in content quality and also membership privilege for the long-term perspective, the result of that has been promising. And more users have been growing to pay -- willing to pay at a reasonable price for premium content, also quality services.

[解釋] 是的。第三季ARM突破15元，在我們的預期之內。這是因為我們在內容品質和會員特權方面取得了長足的進步，其結果是有希望的。越來越多的用戶願意以合理的價格購買優質內容和優質服務。

(foreign language)

（外語）

[Interpreted] We expect healthy growth in ARM to continue in Q4 with significant room for further improvement in the long term. Our confidence comes from four aspects.

【解讀】我們預期 ARM 在第四季將繼續健康成長，長期來看還有很大的進一步改善空間。我們的信心來自四個面向。

(foreign language)

（外語）

[Interpreted] Content quality remains the primary determinant for our members' purchase decision. And our ability to consistently provide high-quality and diversified content is strengthening continuously.

[解讀]內容品質仍是會員購買決策的首要決定因素。我們持續提供高品質、多元化內容的能力正在不斷增強。

(foreign language)

（外語）

[Interpreted] Second, in comparison to other domestic daily consumer goods and similar products abroad, our current prices are relatively low.

【解讀】第二，與國內其他日用消費品和國外同類產品相比，我們目前的價格相對較低。

(foreign language)

（外語）

[Interpreted] Third, with the growing demand for watching content on large TV screens, an increasing number of Gold members are upgrading to Platinum and Diamond membership levels.

【解讀】第三，隨著電視大螢幕觀看內容需求的不斷增長，越來越多的金卡會員升級為白金卡、鑽石卡會員等級。

(foreign language)

（外語）

[Interpreted] And fourth, the introduction of more member privileges and benefits such as loyalty points, express package, cloud performances, member-exclusive e-commerce items and also IP merchandise will continuously enhance the attractiveness and the long-term value for members.

【解讀】第四，推出更多積分、快遞套餐、雲端演出、會員專屬電商商品、IP商品等會員特權和福利，不斷增強會員吸引力和長期價值。

(foreign language)

（外語）

[Interpreted] All of the above four items I just mentioned give us confidence that the ARM will continue to have healthy growth in the future.

【解讀】我剛才提到的上述四點，都讓我們對ARM未來繼續健康成長充滿信心。

(foreign language)

（外語）

[Interpreted] Further, due to our relatively low pricing base, the absolute impact of ARM growth on user perception is relatively small. What users care about the most is still the quality of content and the user experience. We have seen rapid increase in member conversions with the launch of recent premium content.

【解讀】此外，由於我們的定價基礎相對較低，ARM成長對使用者感知的絕對影響相對較小。用戶最關心的仍然是內容的品質和用戶體驗。隨著最近優質內容的推出，我們看到會員轉換率迅速增加。

This indicates that our strategy of leveraging quality content and user experience to enhance ARM and long-term member value is correct and has gained user recognition, leading to sustainable growth in membership revenue. We will continue to pursue this direction.

這表明我們利用優質內容和用戶體驗來提升ARM和長期會員價值的策略是正確的，並得到了用戶的認可，會員收入持續增長。我們將繼續朝著這個方向努力。

The next question will come from Lincoln Kong of Goldman Sachs.

下一個問題將由高盛的林肯·孔提出。

(foreign language) So my question is, at this time juncture of the year when we're thinking about next year, how is our overall business plan, strategy, outlook and the focus area for next year?

（外語）所以我的問題是，在這個一年中的關鍵時刻，當我們思考明年的時候，我們明年的整體業務計劃、策略、前景和重點領域是怎樣的？

(foreign language)

（外語）

[Interpreted] For next year, for 2024, based on the current macro environment and also our current performance so far, our goal for next year is still aiming for high-quality growth, high-quality growth, meaning the revenue and profit will both grow and profit will grow at a faster pace.

【解讀】對於明年，對於2024年，基於現在的宏觀環境，也基於我們目前為止的表現，我們明年的目標還是高質量的增長，高質量的增長，就是說收入和利潤都是增長，利潤將以更快的速度成長。

(foreign language)

（外語）

[Interpreted] Okay. Secondly, we will cautiously appropriate an increased investment in core business to promote long-term growth. Specifically, we will reasonably allocate more investment in top premium content to enhance our core membership business performance in ARM, member lifetime and sub base and also will drive performance in advertising business.

[解釋]好的。其次，我們將審慎加大對核心業務的投入，促進長期成長。具體來說，我們將合理分配更多對頂級優質內容的投資，以提升我們在 ARM 的核心會員業務績效、會員生命週期和子基礎，同時也將推動廣告業務的績效。

(foreign language)

（外語）

[Interpreted] Okay. And thirdly, we will continue to explore the implementation of innovative technologies centered around generative AI. So there are two sides that's going to benefit from this. On the B2B side, we will increase investments in intelligent production to improve the industrialization and efficiency of the video industry. And on the B2C side, we will explore new services and even new business models to cater to the consumer needs. And hopefully, this will become the second or third growth -- new growth pillars going forward in the long term.

[解釋]好的。第三，我們將繼續探索以生成式人工智慧為核心的創新技術的落地。因此，有兩個面向將從中受益。 B2B方面，我們將加大智慧生產投入，提升影視產業產業化與效率。而在B2C方面，我們會探索新的服務，甚至是新的商業模式，以滿足消費者的需求。希望這將成為第二或第三個成長——長期來看新的成長支柱。

(foreign language)

（外語）

[Interpreted] And for the other two innovative and new growing business, such as the overseas business and iQIYI Lite, if we can maintain the profitability of these two businesses, we will hopefully to grow the revenue performance for these segments next year.

【解讀】而對於另外兩個創新的、新成長的業務，例如海外業務和愛奇藝精簡版，如果我們能夠保持這兩個業務的盈利能力，那麼明年我們將有望實現這兩個業務的營收表現。

The next question comes from Daniel Chen of JPMorgan.

下一個問題來自摩根大通的丹尼爾陳。

(foreign language) My question is on the content cost and also content strategy. Could management please elaborate on what's our content strategy going forward and also the content spend outlook?

（外語）我的問題是關於內容成本和內容策略。管理階層能否詳細說明我們未來的內容策略以及內容支出前景？

Yes, our Chief Content Officer, Mr. Xiaohui, will answer this question. Please go ahead.

是的，我們的首席內容長小輝先生來回答這個問題。請繼續。

(foreign language)

（外語）

[Interpreted] Our goal for -- in the future remains to consistently deliver high-quality and diverse content, solidifying our core advantage in drama genre while seeking breakthroughs in other content categories.

【解讀】未來我們的目標仍然是持續提供高品質、多元化的內容，鞏固戲劇類型的核心優勢，同時在其他內容類別上尋求突破。

(foreign language)

（外語）

[Interpreted] For 2024, in terms of the drama category, while maintaining a stable overall number of releases, we will focus on increasing investment in top-tier projects, which we normally called the S and A+ gradings. Continue to produce and supply high-quality content is our #1 goal.

【解讀】2024年，電視劇品類方面，在維持上映總量穩定的同時，重點加大對精品項目的投入，也就是我們通常所說的S級和A+級項目。繼續製作和提供高品質的內容是我們的第一目標。

In Q1 of next year, we will launch a new season of Mist Theater, a highly anticipated S-grade production, strengthening our competitive advantage and making a strong kickoff for the year. Based on the iQIYI's popularity index score, we have already seen 4 dramas this year that have exceeded a significant milestone of 10,000 score for this year. And we anticipate the performance for next year will be better than this year.

明年一季度，我們將推出備受期待的S級製作《迷霧劇場》新一季，強化競爭優勢，為全年開局強勁。從愛奇藝的人氣指數來看，今年已經有4部劇突破了今年的10000分這一重要里程碑。我們預計明年的表現會比今年更好。

(foreign language)

（外語）

[Interpreted] Regarding variety shows, while keeping content costs relatively stable, we will increase the number of programs and upgrade our production team. In addition to the already market-proven multi-season variety shows, several innovative projects will be gradually introduced starting from Q4 this year, such as our original physical competition show, We Never Stop, which will be launched at the end of November. And we have internally high expectations for that. In terms of business models, we form monetization models beyond advertising, membership and IP derivatives as well as explore more IT development opportunities throughout its lifecycle.

【解讀】綜藝方面，在維持內容成本相對穩定的情況下，我們會增加節目數量，升級製作團隊。除了已經經過市場驗證的多季綜藝節目外，今年第四季開始將逐步推出一些創新項目，例如我們原創的體能競技節目《我們永不止步》將於11月底上線。我們內部對此抱持著很高的期望。在商業模式上，我們形成了廣告、會員、IP衍生性商品以外的變現模式，並在整個生命週期中探索更多的IT發展機會。

(foreign language)

（外語）

[Interpreted] For movies, we will increase investment in films made for online distribution and top-tier content feature films while further optimizing the operating models for online films, theatrical releases and our iQIYI Cloud Cinema.

【解讀】電影方面，我們將增加對網路發行電影和精品內容長片的投入，同時進一步優化網路電影、院線上映和愛奇藝雲影院的營運模式。

(foreign language)

（外語）

[Interpreted] For children's content, we will appropriately increase investments, strengthen the influence of our multi-season IPs and increase commercially oriented original content as well as expand PUGC content. Our primary objective will be increasing the revenue growth potential and expanding IP licensing and exploring additional revenue potential such as toy licensing and et cetera.

【解讀】兒童內容方面，我們將適當加大投入，加強多季IP影響力，增加商業化原創內容，拓展PUGC內容。我們的主要目標是增加收入成長潛力，擴大知識產權許可，並探索額外的收入潛力，例如玩具許可等。

(foreign language)

（外語）

[Interpreted] As for animation, Q3 was the best quarter we've had for original animation. We are confident in further increasing investment in original content next year and expect a moderate increase in the number of original titles.

[解讀] 至於動畫，第三季是我們原創動畫最好的季度。我們有信心明年進一步加大原創內容投入，預計原創作品數量將適度成長。

The next question comes from Thomas Chong of Jefferies.

下一個問題來自 Jefferies 的 Thomas Chong。

(foreign language) May I ask about our overseas outlook as well as our strategies?

（外語）請問我們的海外前景以及我們的策略？

Our Senior Vice President, Xianghua, will answer this question.

我們的高級副總裁向華將回答這個問題。

(foreign language)

（外語）

[Interpreted] Our overseas business started in 2019 and encountered the outbreak of COVID, which led us to adjust and slow down our progress over these 3 years. However, through these 3 years of exploration, we have also achieved fruitful results.

【解讀】我們的海外業務從2019年開始，遇到了新冠疫情的爆發，導致我們這三年的進度有所調整和放緩。不過，透過這3年的探索，我們也獲得了豐碩的成果。

(foreign language)

（外語）

[Interpreted] Firstly, we have validated our business model. Although our overseas business is still small in scale in 2023, we forecast to achieve revenue growth and profitability. We have experimented in different markets and identified methods for growth and profitability that can be gradually replicated in other markets.

【解讀】首先，我們驗證了我們的商業模式。儘管我們的海外業務在2023年仍規模較小，但我們預計將實現收入成長和獲利。我們在不同的市場進行了試驗，並確定了可以在其他市場逐步複製的成長和獲利方法。

(foreign language)

（外語）

[Interpreted] And secondly, we have validated the influence of iQIYI's original content overseas, establishing our core competitiveness. Our goal is to establish our overseas platform as the home of beloved Asian content. And iQIYI's original Chinese dramas are our most evident advantage. Over the past years, Chinese dramas have witnessed significant viewership growth in certain markets. And we have seen the potential of C-pop.

【解讀】第二，我們驗證了愛奇藝原創內容在海外的影響力，確立了我們的核心競爭力。我們的目標是將我們的海外平台打造成深受喜愛的亞洲內容的家。而愛奇藝的原創國劇是我們最明顯的優勢。過去幾年，中國電視劇在某些市場的收視率大幅成長。我們已經看到了中國流行音樂的潛力。

(foreign language)

（外語）

[Interpreted] And lastly, we began to build a comprehensive ecosystem in key countries, including cooperation with local regulatory agencies, content partners and channel partners. Through these collaborations, we have already launched exceptional local drama content. We can bring outstanding content and culture from all over the world to iQIYI users in China and also around world through our global network. These advancements have inspired us largely.

【解讀】最後，我們開始在重點國家建立一個全面的生態系統，包括與當地監管機構、內容合作夥伴和通路夥伴的合作。透過這些合作，我們已經推出了出色的本地戲劇內容。我們可以透過我們的全球網絡，將世界各地的優秀內容和文化帶給中國以及世界各地的愛奇藝用戶。這些進步給我們很大啟發。

(foreign language)

（外語）

[Interpreted] Building on these three achievements, we aim to strengthen collaboration with partners around the world using content as a medium and leveraging technology platforms to facilitate cultural exchange and also explore new commercial opportunities. We will continuously empower and add value to everyone in our ecosystem.

【解讀】在這三項成果的基礎上，我們希望加強與全球合作夥伴的合作，以內容為媒介，利用科技平台，促進文化交流，探索新的商業機會。我們將不斷為生態系統中的每個人賦能並為其增加價值。

The next question comes from Maggie Ye of CLSA.

下一個問題來自里昂證券的 Maggie Ye。

(foreign language) My question is about advancement we made in the application of generative AI technologies at iQIYI. And I'm particularly interested in understanding the results we have already achieved in terms of improvement in business efficiency as well as cost structure and also want to learn more about management's perspective on the long-term impact of these technologies.

（外語）我的問題是關於愛奇藝在生成式人工智慧技術應用方面的進展。我特別有興趣了解我們在提高業務效率和成本結構方面已經取得的成果，並且還想更多地了解管理層對這些技術的長期影響的看法。

Sure. Thank you, Maggie. And then we will have Wenfeng, our CTO, to answer this question.

當然。謝謝你，瑪吉。然後請我們的CTO文峰來回答這個問題。

(foreign language)

（外語）

[Interpreted] Okay. We believe that generative AI will have significant impact on the entire video industry in the next 3 to 5 years, bringing significant changes in production methods, cost structure and personnel structure. So currently, iQIYI has already started implementing generative AI in core areas such as content planning, development, production and promotion. We have achieved a certain level of productivity in four major application scenarios, namely tech, image, sound and videos. And this has helped creators to improve quality, optimize efficiency and reduce costs.

[解釋]好的。我們認為，生成式人工智慧將在未來3到5年對整個影片產業產生重大影響，帶來生產方式、成本結構和人員結構的重大變化。目前，愛奇藝已經開始在內容策劃、開發、製作、推廣等核心領域落地生成式人工智慧。我們在科技、影像、聲音、視訊四大應用場景都達到了一定的生產力水準。這幫助創作者提高品質、優化效率並降低成本。

(foreign language)

（外語）

[Interpreted] For example, in content planning space, we have used generative AI to compress the time required for sorting sensitive evaluation feedback from project assessment process from several hours to a few minutes. In the development phase, the use of generative AI has assisted reducing the time required for manual reading from 3 to 4 days to about 1 hour. The accuracy of scene and character breakdown in scripts have also exceeded 90%.

【解讀】例如，在內容策劃領域，我們利用生成式人工智慧，將專案評估過程中敏感評估回饋的排序時間從幾個小時壓縮到幾分鐘。在開發階段，生成式人工智慧的使用有助於將手動閱讀所需的時間從3至4天減少到約1小時。劇本中場景和人物分解的準確率也超過了90%。

(foreign language)

（外語）

[Interpreted] In the production phase, producers have effectively saved on design and production costs by using generative AI tools to generate character sketches and compact posters. In the promotion phase, high-quality posters and dynamic videos generated by generative AI have been applied in on-platform operations and off-platform advertising for key projects such as Destined and the Big Band 3.

【解讀】在製作階段，製作方利用生成式AI工俱生成人物草圖和簡潔海報，有效節省了設計和製作成本。在推廣階段，生成式AI生成的高品質海報和動態影片已應用於《命中註定》、《大樂隊3》等重點項目的站內營運和站外廣告。

(foreign language)

（外語）

[Interpreted] In addition to content production, we also utilized AI-generated creative tools for effective ad material production for performance ads. Some industries have seen a 200% increase in ad spending compared to before the use of AI while using -- while our campaigns using AI-generated materials have also experienced a 60% higher rate of investment compared to non-AI materials.

【解讀】除了內容製作，我們也利用AI生成的創意工具，對效果廣告進行有效的廣告素材製作。與使用人工智慧之前相比，一些行業的廣告支出在使用過程中增加了 200%，而我們使用人工智慧生成材料的廣告活動的投資率也比非人工智慧材料高出 60%。

(foreign language)

（外語）

[Interpreted] In the future, we will continue to explore more business scenarios and application opportunities, fully leveraging the capabilities of generative AI to create even greater value.

【解讀】未來，我們將持續探索更多的業務場景和應用機會，充分發揮生成式人工智慧的能力，創造更大的價值。

There are no further questions at this time. I'll now hand back to management for closing remarks.

目前沒有其他問題。我現在將請管理階層作結束語。

Thank you, everyone, for participating in today's call, and please do not hesitate to contact us if you have further information or questions. Thank you. Bye-bye. We'll see you next quarter.

感謝大家參加今天的電話會議，如果您有更多資訊或疑問，請隨時與我們聯繫。謝謝。再見。我們下季見。

Thank you.

謝謝。

The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.

會議現已結束。感謝您參加今天的演示，您現在可以斷開連接了。

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

[本文字記錄中標記為[已翻譯]的部分是由現場通話中的口譯員朗讀的。]