iQIYI Inc (IQ) Report Interpretation

Overview

This earnings review assesses iQIYI’s 2Q26 miss and its near-term revenue outlook. Nomura sees continuing revenue headwinds but expects content-cost reductions, including from AI-driven production and a revenue-sharing platform model, to support longer-term efficiency.

Core views

iQIYI’s 2Q26 total revenue declined 5% year-on-year to CNY6.287bn, missing both Bloomberg consensus and Nomura’s estimate by 1%, primarily because other revenue was weaker. Membership revenue fell 2% year-on-year to CNY4.014bn, an improvement from the 5% decline in 1Q, supported by hit titles. Online advertising revenue slipped 2% to CNY1.246bn amid soft advertiser demand during the 618 promotions. Content distribution revenue rose 56% to CNY682mn on increased cash transactions, while other revenue fell 58% to CNY345mn following the termination of a business cooperation agreement. The revenue miss and operating deleverage weakened profitability. Non-GAAP operating profit moved from a CNY59mn profit a year earlier to a CNY30mn loss, versus Nomura’s breakeven expectation. Operating margin fell 1.4 percentage points year-on-year to -0.5%, as lower revenue reduced cost leverage. A higher tax expense from one-off discrete fees related to a subsidiary adjustment contributed to a CNY210mn non-GAAP net loss, wider than the CNY95mn consensus loss. Content costs nevertheless increased only 1% year-on-year, broadly in line with Nomura’s estimate. For 3Q26F, Nomura forecasts revenue to fall 8% year-on-year to CNY6.1bn, 7% below pre-2Q consensus, with most segments declining. It expects online advertising to grow 2% year-on-year as performance-based advertising returns to growth, but projects membership revenue to fall 5% to CNY4.0bn because the summer content slate is relatively muted. Adjusted operating profit is forecast to recover to CNY12mn from a CNY22mn loss a year earlier, although this remains below the pre-2Q consensus expectation of CNY92mn profit. Nomura expects operating margin to improve 0.5 percentage points year-on-year, supported by gross-margin expansion. The report’s longer-term offset to weak revenue is content-cost optimization. iQIYI expects content cost to decline by high-single digits quarter-on-quarter in 3Q because of fewer content-distribution transactions, reaching its lowest level since last year. Nomura expects efficiency gains to accelerate as the company adopts AI-driven content production and shifts toward a decentralized revenue-sharing platform model. Reflecting weaker membership and other-revenue growth assumptions, Nomura cuts FY26F and FY27F revenue forecasts by 2% and 3%, respectively, to CNY25.028bn and CNY25.711bn. It cuts FY26F adjusted earnings to a CNY371mn loss, but raises FY27F earnings by 56% to CNY496mn on improved assumed content-cost efficiency. Nomura reiterates Neutral and its USD1.30 DCF-based target price, based on a 9.7% WACC and 1% terminal growth rate, with cash flows discounted to FY26F; the target implies FY27F P/E of 17x, equal to the reported current 17x.

Analysis framework

Nomura reviews the quarterly revenue and profit miss against consensus and its own estimates, breaks results down by business line, then projects 3Q segment trends and content costs. It revises FY26F-FY27F forecasts and values the company using discounted cash flow assumptions.

Methodology notes

• Valuation methodsDCF (Discounted Cash Flow)

  Discounted cash flow valuation

  Nomura derives its USD1.30 target price by discounting forecast cash flows back to FY26F using a 9.7% WACC and 1% terminal growth rate.

• Industry AnalysisVolume-price decomposition

  Segment-level revenue and cost analysis

  The report separates membership, advertising, content distribution and other revenue to explain the earnings miss and forecast the next quarter.

Asset mapping & comparison

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

• iQIYI Inc (IQ)

  Primary covered company; revenue pressure is expected to persist, while content-cost optimization supports a longer-term efficiency recovery.

  Strengths

  Membership decline improved versus 1Q; content distribution revenue rose 56% year-on-year; AI-driven production and a revenue-sharing model may improve efficiency.

  Weaknesses

  2Q26 revenue and earnings missed expectations; membership, advertising and other revenue declined; operating margin was -0.5%.

  Comparison

  The USD1.30 target implies FY27F P/E of 17x, versus the reported current 17x.

  Risks

  User growth and time spent may deteriorate; competition for users and content may intensify; online-video regulation may become more restrictive.

Key data

• 2Q26 total revenueCNY6.287bnDown 5% year-on-year; 1% below Bloomberg consensus and Nomura estimates.
• 2Q26 membership revenueCNY4.014bnDown 2% year-on-year; 64% of revenue.
• 2Q26 non-GAAP operating profitCNY-30mnVersus CNY59mn profit in 2Q25; operating margin was -0.5%.
• 2Q26 non-GAAP net profitCNY-210mnVersus consensus expectation of a CNY95mn loss.
• 3Q26F revenue forecastCNY6.1bnDown 8% year-on-year and 7% below pre-2Q consensus.
• FY26F/FY27F revenue revision-2% / -3%Revised to CNY25.028bn and CNY25.711bn, respectively.
• FY27F adjusted earnings revision+56% to CNY496mnDriven mainly by improved content-cost efficiency assumptions.

Impact & implications

Nomura’s Neutral stance reflects a trade-off between continuing near-term revenue and membership pressure and a potential margin recovery from lower content costs and longer-term AI-enabled operating efficiency.

Risks

• User growth and time spent may deteriorate further because of other entertainment content.
• Competition among long-form video platforms for users and content may intensify.
• Further regulation related to online video platforms or video content could weigh on results.
• The target-price outcome could improve if MAU and subscriber growth, overseas and experience-business contribution, or AI-related operating efficiency exceeds expectations.

What to watch

• 3Q26 membership revenue, which Nomura forecasts to decline 5% year-on-year to CNY4.0bn.
• Whether performance-based advertising returns to growth, supporting Nomura’s forecast of 2% year-on-year advertising growth.
• The expected high-single-digit quarter-on-quarter decline in 3Q content costs.
• Execution of AI-driven content production and the decentralized revenue-sharing platform model.
• MAU and subscriber trends, overseas and experience-business contribution, competition, and regulatory developments.