iQIYI's 1Q26 results were broadly in line, but 2Q26 growth and profit outlook are weak

Overview

This report is Nomura's commentary on iQIYI Inc's 1Q26 results. The report says the company's 1Q26 revenue and profit were broadly in line with expectations, but the top line remains on a downward trend, with pressure across membership, advertising, content distribution, and other revenue. Looking ahead to 2Q26F, the decline in revenue may narrow versus 1Q26, but the business outlook remains subdued, and operating profit is expected to be near breakeven and below prior market expectations.

Core views

The core view is that iQIYI's near-term fundamentals still lack a clear improvement. In 1Q26, membership revenue declined year over year because the content slate was lighter, especially due to weaker major variety show content; advertising revenue fell as macro pressure led advertisers to cut spending; and content distribution and other revenue dropped sharply because of fewer barter transactions and the termination of a business cooperation arrangement. In 2Q26F, membership revenue may be flat, supported by a low base and the launch of popular content such as 'Low IQ Crime,' but declines in other revenue and cost deleveraging still limit profit recovery. Accordingly, Nomura maintains a Neutral rating and lowers the target price.

Analysis framework

The report combines earnings breakdowns, segment revenue forecasts, margin analysis, and DCF valuation. Key focus areas include actual 1Q26 revenue and profit performance, 2Q26F revenue forecasts for each business line, the offsetting effect of operating expense control on profit, and the impact of revisions to FY26F/FY27F revenue and non-GAAP earnings forecasts on the target price.

Methodology notes

• Valuation methodDCF

  Discounted cash flow valuation

  Nomura set the target price at USD1.3 based on a DCF approach, assuming a WACC of 9.7% and a perpetual growth rate of 1%, with cash flows discounted back to FY26F.

• Performance metricnon-GAAP operating profit

  non-GAAP operating profit

  The report uses non-GAAP operating profit to measure operating profitability. In 1Q26, it swung from a profit of CNY459mn a year earlier to a loss of CNY149mn, and 2Q26F is expected to be close to breakeven.

• Relative performance benchmarkNasdaq Composite

  stock performance benchmark

  The report states that the stock's benchmark index is the Nasdaq Composite, and a Neutral rating means expected performance over the next 12 months is broadly in line with the benchmark.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• iQIYI Inc (IQ.US)

  Covered research target

  Strengths

  One of China's leading long-form video platforms, allowing users to watch dramas, movies, variety shows, and other content; a low base and popular content launches may support membership revenue; cost control can help ease profit pressure; the planned Hong Kong Main Board listing and share repurchase program may improve investor attention.

  Weaknesses

  Revenue is still declining year over year, with 1Q26 membership, advertising, content distribution, and other revenue all down; non-GAAP operating profit turned to a loss; cost deleveraging is pressuring gross margin and operating margin.

  Comparison

  The rating benchmark is the Nasdaq Composite, and Neutral means Nomura expects the stock to perform broadly in line with the benchmark over the next 12 months.

  Risks

  User growth and viewing time may continue to deteriorate, competition for users and content among long-form video platforms may intensify, and regulatory risks related to online video platforms and content remain.

Key data

• 1Q26 total revenueCNY6.2bn, -13% YoYBroadly in line with Bloomberg consensus and Nomura's forecast.
• 1Q26 membership revenue-5% YoYMainly due to a lighter content slate, especially weaker major variety show content.
• 1Q26 online advertising revenue-7% YoYSome advertisers reduced spending on iQIYI because of macro pressure.
• 1Q26 content distribution revenue-43% YoYMainly due to fewer barter transactions.
• 1Q26 other revenue-49% YoYMainly due to the termination of a business cooperation arrangement.
• 1Q26 non-GAAP operating profitLoss of CNY149mnCompared with a profit of CNY459mn a year earlier; the non-GAAP operating margin was -2.4%.
• 2Q26F total revenue forecastCNY6.4bn, -4% YoYThe year-over-year decline in revenue is expected to narrow versus 1Q26.
• 2Q26F membership revenue forecastCNY4.2bn, flat YoYSupported by a low base and popular content launches.
• 2Q26F online advertising revenue forecast-2% YoYAdvertiser sentiment remained relatively weak ahead of the 618 promotion period.
• 2Q26F other revenue forecast-46% YoYMainly due to the termination of some business cooperation arrangements.
• 2Q26F adjusted operating profit forecastNear breakevenBelow the pre-earnings consensus of CNY113mn.
• Target priceUSD1.3Cut from USD1.9, based on DCF valuation.
• Share repurchase programUp to USD100mn, USD8mn repurchasedProgram valid through September 2027.

Impact & implications

The report is cautious on iQIYI from an investment standpoint. Although the 2Q26F revenue decline may narrow, membership revenue may stabilize, and the company may partially offset profit pressure through strict control of sales and marketing expenses, the revenue growth assumptions and earnings forecasts have been cut materially, indicating that the fundamental recovery is still insufficient. The lower target price reflects weaker earnings visibility and insufficient medium-term growth momentum, while the Neutral rating implies a broadly balanced risk-reward profile.

Risks

• Further deterioration in user growth and viewing time, possibly due to competition from other entertainment content.
• Intensifying competition among long-form video platforms for users and content.
• Further increases in regulatory risks related to online video platforms or video content.
• Weak advertiser sentiment may continue to weigh on online advertising revenue.
• The termination of business cooperation arrangements may continue to drag down other revenue sharply.
• Cost deleveraging may continue to compress gross margin and operating margin.

What to watch

• Whether 2Q26F membership revenue can achieve flat year-over-year growth supported by a low base and popular content launches.
• MAU, subscriber growth, and viewing time trends after the launch of content such as 'Low IQ Crime.'
• Advertiser sentiment and the recovery in online advertising revenue around the 618 promotion period.
• The duration and magnitude of the decline in other revenue due to the termination of business cooperation arrangements.
• Whether control of sales and marketing expenses can continue to offset part of the gross margin pressure.
• Progress on the planned Hong Kong Main Board listing and the pace of execution of the USD100mn share repurchase program.
• Whether FY26F non-GAAP losses widen or narrow, and whether FY27F earnings forecasts still need to be revised down.