Prepared remarks
Thank you for standing by, and welcome to the iQIYI Second Quarter 2026 Earnings Conference Call. I would now like to hand the conference over to Ms. Chang Yu, IR Director of the company. Please go ahead.
Thank you, operator. Hello, everyone, and thank you for joining iQIYI's Second Quarter 2026 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. On the call today are Mr. Yu Gong, our Founder, Director and CEO; Mr. Ying Tian, our CFO; Mr. Xiaohui Wang, our CCO, Chief Content Officer; Mr. Youqiao Duan, Senior Vice President of our Membership Business; Mr. Xianghua Yang, Senior Vice President of International and Online Game Business; and Mr. Gang Wu, Senior Vice President of Brand Advertising Business. Mr. Gong will give a brief overview of the company's business operations and highlights, followed by Ying, who will go through the financials. After the prepared remarks, the management team will participate in the Q&A session. 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. I will now pass on to Mr. Gong. Please go ahead.
Hello, everyone. In the second quarter, we continued to reinforce our core business: high-quality, diversified content powered by our industry-leading performance. According to Enlighten data, we maintained the #1 market share in each of the long-form drama, film and children's content categories. And for short-form dramas, we made a major breakthrough, reaching #1 market share for the first time. Financial performance also improved quarter-over-quarter. Total revenues grew sequentially and our non-GAAP operating loss narrowed substantially, approaching breakeven. We are fully advancing our strategic transformation. First, we are shifting from centralized media to a decentralized, creator- and user-centric social media ecosystem. AI can dramatically lower the cost and barrier to content creation, turning what was once a niche professional activity into a mass capability and triggering an unparalleled surge in content supply.
Because traditional centralized models cannot accommodate the scale and diversity, we are upgrading our content acquisition and distribution mechanisms to efficiently connect creators and audiences. Second, we are taking an all-in approach on AI to revolutionize both live-action production and pure AIGC. Our guiding principle is clear: maximize cost efficiency without compromising quality. Together, these two pillars reinforce each other like a flywheel. AI drives rapid growth in content supply, which helps us move faster towards a decentralized model. And as we decentralize, more creators can participate, users get more engaged and our platform becomes even stronger. In Q2, both strategies moved from plans to measurable results that will structurally improve our content cost, revenue quality, profitability and cash flow. Let me walk you through the progress. Decentralization: we are improving our platform and accelerating the creator ecosystem.
In April, we refreshed our core creator hub, the iQIYI Creator Center. Early signs are promising. The number of creators and uploads are all trending higher. Content with short production cycles, lower production scale and a good fit for AI-driven creation has seen especially strong growth. For various types of content, the daily average number of uploaded works in the second quarter increased by 30% to 500% compared to the first quarter. In June, daily views for micro dramas and micro animations were up by double digits compared with March. Short-form dramas and animation are also gaining traction. Looking ahead, more long-form video categories will join the decentralized content ecosystem as we preserve iQIYI's premium content advantage. We will broaden our content slate by adopting lighter, more flexible content acquisition models. On content production, AI is substantially optimizing production efficiency and cost structure.
First, in live action, AI is streamlining the post-production workflow. For example, we leveraged AI in our variety show Her Prime Season 2 to achieve a tenfold leap in rough-cutting efficiency compared to traditional methods. Second, for content types well suited to AIGC, production can reduce costs and timelines by 70% to 90% compared with traditional methods, while pushing past the physical limits of live-action shooting. Naturally, AI adoption is faster in CG-heavy formats. We have launched multiple AI-generated internet feature films. A major milestone was the July premiere of Mystic Tale Chitan, the industry's first AIGC internet feature film to launch with an internet drama and film distribution license. This marks the official shift of long-form AIGC from technical testing to standard large-scale production. In addition, year-to-date, we have launched 16 AI-generated short-form dramas under our revenue-sharing model with Trio Handmade as a top-performing title.
In the second half of the year, we have launched a diversified slate of AIGC titles, including multiple internet feature films with an even broader pipeline across expanded categories next year. Currently, we have multiple AI-generated short-form dramas in development. NadouPro is our studio-grade production platform for creators. It runs on optimized third-party and in-house models, plus iQIYI's long-standing expertise in professional content. By replacing costly steps with lower compute and tool costs, it lowers costs and speeds up professional content production. Our strategy is clear: internally, NadouPro can cut development and production costs; externally, NadouPro explores new revenue streams and gradually converts our professional production capabilities into incremental revenue. NadouPro isn't just generating AI output, it changes the key parts of long-form production—script writing, shot design, workflows, digital assets, editing, and dubbing—into platform features.
It delivers an end-to-end workflow, integrates talent with content assets, and makes progress repeatable and reusable. NadouPro is evolving from a tool into a comprehensive creator ecosystem as it links content demand with creators and enables them to realize commercial returns through flexible business models. This activates a flywheel: commercial returns encourage more content supply; expanded supply fortifies the ecosystem; a stronger ecosystem scales both creators and works, powering the creation platform for our decentralized content ecosystem. We believe these advances will improve content production efficiency, lower unit costs, and increase both users and revenue as we roll them out across all operations and scale. We expect their contributions to profit and cash flow to start to materialize. Now let's move on to the detailed performance in Q2. Let's start with content. Our premium content is well recognized by users and the industry.
At the Magnolia Awards this June, one of China's top TV honors, iQIYI titles and their creative teams won 14 of 23 awards, including 10 of 11 in the drama category, well ahead of peers. In Q2, our content performed well across formats. In long-form dramas, we continue to focus on female-centric stories, with titles ranking among this year's top two by ad revenue. We also reinforced our lead in suspense-genre innovation. The suspense committee formed with our partners surpassed the 10,000 iQIYI popularity score and drove strong membership sign-ups. Several titles earned strong reviews. Our original title Archives Mystery series exceeded a 9,300 popularity index score, and The Epoch of Miyu topped 8,500. In platform-supported short-form dramas, typically 15 to 25 minutes per episode with flexible episode counts, we delivered exciting early results. Per Enlighten data, our market share doubled from 25% in March to 50% in June, taking #1 for the first time.
The strong performance was supported by our original The Fireman: 10th Anniversary, which reached a peak daily market share of about 60%. Short-form titles can offer structural advantages over long-form dramas, potentially reducing average per-minute costs by over 50% and shortening production-to-approval timelines by 30% to 50%. In micro dramas, we released and premiered live-action titles like All About Cycle, Career Lead, Falling for You, and Phoenix Blade, all of which resonated well with audiences. AIGC scaled quickly under a revenue-sharing model, accounting for over 50% of our micro portfolio and unique visitors, while AI-native micro-animations expanded with strong sequential growth in views and time spent. In films, we maintained a diversified slate for different audiences. Originals like The Counterfeit Wei Chaotong and The Scene Trigger received positive feedback, while licensed theatrical hits packaged as The Three Feature Blades of the Garden and Building Zoom Topia 2 were also well received on our platform.
In variety shows, we launched seven originals in Q2, with our flagship Fun Chess delivering sustained value. Five Hearts Wuhan crossed a popularity index score of 9,000, reaching a new franchise high for 10 years. Evergreen IP The Rap of China 2026 also stood out, surpassing a popularity index score of 8,800. In animation, we further solidified our original offerings. The Long Grinding Against the Gong Initiation, which premiered in April, topped all animation popularity index charts and brought notable off-platform users back to iQIYI. Together with Gold Ruler That Whose I Am, we now have two long-running titles to keep users engaged year-round. Finally, in children's content, we reinforced our leadership with the return of our original IP sequel Dell Squad and the localized adaptation of the BBC classic Palativious. Next, let me show you our pipeline for the second half of the year. Our summer long-form drama features a diversified lineup, which includes multiple female-oriented titles like Road to Success, Key to the Phoenix Heart, Genius Girlfriends, Cantanyo, Spring of the Blade, You Chun, Abyss, Shen Yuan Wujian, and Invite Pride Shukong Qish, complemented by the military-themed Wind Blow Warriors and the major real estate drama Forging Justice Song Qi.
For the remainder of the year, we will premiere The Great Long March, Small Town Remedy, Xia, Chengliangfeng, and River of No Return. As for short dramas, our upcoming releases include Death of Winter, The Five Worlds of Fido Case, The Sixth Group of Fido Case, Zhuang Liu Xi, and The Great Nobody 2 Dawn Die Hung Zhao. In films, our pipeline features original C films including Winter and Summer, Yilu, Talking Lan No Go to the Child, and Prohibition for Misfortune. In the second half of the year, on the licensed front, our pipeline includes One Nation Point, Qiaoshilen, and The Fiorius this summer, with I Know Who You Are Dare You for the later half of the year. For internet feature films, which are limited to a maximum of three chapters, each at least 60 minutes long, our pipeline includes multiple AIGC titles based on the classic IP The Fireman in Huang Baidu. The first two chapters, A Butterfly Dream and The Dream of Celestial Madam, are set to launch this summer.
Additionally, audiences can also enjoy a strong lineup of live-action titles, including Modern Game and Speed and Battle this summer. Shifting to variety shows, we're deepening audience engagement with established IPs, including The Rap of China 2026, The King of Shaanxi Comedy Season 3, Xi Ju, Zhirong Dankoji, and Her Prime 2 this summer, followed by The Blooming Journey Through Hanhua 3 and Wander Together to Egoshan Watching to Yi in the second half. For animations, this year could be iQIYI's strongest animation summer. The slate may feature A Good Day to Ascend, Georgia Fishing, Raised by the Month, Finally Li Xinmou, Golden Cross, Tai Shen, Dou Gano, and To Be Winner Changiya Shok, alongside the AIGC titles The Legend of King Hong and The Legend of King. For children's content, our summer slate features a new season of the popular Pleasant Goat and Big Big Wolf Xiang Yang Is Villain, as well as original AIGC animations like Lala Beat.
Looking ahead to the second half of the year, we will roll out the original AIGC animation Wusheng Armor and Kamen and Burst Fruits Track Tested Travel Xiaotu Miao Control. Now, turning to membership business, revenue declined sequentially due to seasonality. We are strengthening the business with more refined operations. For example, targeted discounts for students and teachers drove a year-over-year increase of over 60% in quarterly subscribers within this cohort. We also continue to enhance membership value with our express packages. In Q2, we launched the express packages across 16 drivers, driving a nearly 80% annual increase in total participants. In addition, we are expanding joint membership with frequently purchased, top-tier brands popular among young users to support membership growth and retention. Next, moving on to advertising business. For brand ads, revenue from drama-targeted ads delivered double-digit year-over-year growth.
Manufacturing, built-in personnel, and healthcare recorded double-digit year-over-year growth. We also deepened our use of AI in operations and now support customized AIGC for performance. As revenue returned to year-over-year growth, we continued to optimize advertiser mix. Revenue from small and mid-sized advertisers delivered strong year-over-year growth. Sector-wise, revenue from advertisers in AI applications, instant retail, retail, and e-commerce recorded strong year-over-year growth. We further strengthened results with AI by upgrading our proprietary large models, improving targeting precision, and driving revenue. Moving on to our business performance in regions outside of mainland China. In Q2, this business sustained rapid growth. Membership revenues grew 40% year over year. Portuguese- and Spanish-speaking regions demonstrated robust growth. Notably, membership revenue from Brazil and Mexico surged by over 215% and 150% year over year, respectively.
Our Arabic-speaking markets also show strong potential, with membership revenue increasing 85%. The global influence of C-drama continues to expand. In Q2, membership revenue from C-dramas grew over 40% year over year. Hit titles such as Fit, Choose You Jiang or Piancheng topped our international platform rankings across 14 regions in its first week and stayed in the top 10 of the free-dramas chart for 10 consecutive weeks. On the local production front, we are accelerating the pace. Our first original Indonesian drama, The Other Sister, gained strong traction. Per Google Trends, it became the number one local internet drama in Indonesia in the first half of 2026. Micro-dramas were another major highlight, serving as the second-largest membership revenue contributor following long-form dramas in Q2. Membership revenue from this category grew over 300% year over year. This momentum was partly fueled by stronger original production.
Notably, originals rose to 3 of the top 10 contributors to membership revenue. AIGC was another key driver of our overseas micro-drama expansion. In Q2, we launched AI-generated titles in multiple languages, including English, Thai, and Korean. Our original titles delivered exceptional efficiency, recouping production costs within the same quarter and demonstrating stable profit potential. We are scaling supply through both original and external partnerships. In May, we released our first original AI-generated micro-drama overseas, which quickly ranked in the top three for micro-drama revenue on our international platform. The title was produced by NadouPro, which helped us establish full-flow AIGC know-how, laying a strong foundation for scaled production. In parallel, we are proactively forging external partnerships to connect overseas script production and tool ecosystems, including NadouPro, unlocking capacity and scaling AIGC supply.
Beyond content, we are driving growth with strong memberships. We have partnered with Vision+ in Indonesia and will launch joint memberships with Veo in more markets in the second half. We are excited about the future potential of our overseas business. With that, I will hand it over to Ying Tian, our new CFO, to walk you through the financials.
Okay. Thank you, Mr. Gong, and hello, everyone. Let me walk you through our key financial results for Q2. Total revenues were RMB 6.3 billion, up 1% sequentially. Membership services revenue was RMB 4.0 billion, down 4% sequentially, primarily due to seasonality. Online advertising revenue was RMB 1.2 billion, flat sequentially. Content distribution revenue was RMB 681.5 million, up 9% sequentially, driven by the increase in content distribution revenue related to the drama series. Other revenues were RMB 344.9 million, down 19% sequentially. Moving on to costs and operations—operating expenses. Content cost was RMB 3.8 billion, up 2% sequentially. Total operating expenses were RMB 1.1 billion, down 6% sequentially, reflecting disciplined marketing spending. Non-GAAP operating loss narrowed by 8% sequentially from RMB 148.6 million in Q1 to RMB 30.3 million, bringing us close to breakeven.
Turning to cash flow. Net cash provided by operating activities increased to RMB 339.6 million from RMB 186.4 million in Q1. As of the end of Q2, we had cash, cash equivalents, restricted cash and short-term investments of RMB 4.1 billion. Separately, as of the quarter end, we had a loan principal of USD 636.6 million receivable from PAG, included in prepayments and other assets on the consolidated balance sheet. We remain focused on creating long-term shareholder value. In March 2026, we announced a share repurchase program of up to USD 100 million effective through September 2027. As of June 30, we had repurchased approximately 21.6 million ADS for an aggregated cost of USD 24.1 million. For further details, please refer to today's earnings on our Investor Relations website. With that, we are ready to take questions. Operator, please proceed.
Questions and answers
Your first question comes from Xueqing Zhang with CICC.
I would like to ask: with AI technology and the market evolving rapidly, how does management see iQIYI's business model developing in the future? And what are the company's key strategic and operational priorities going forward?
We see iQIYI as a beneficiary of AI now and in the long term. To capture this opportunity, we are making strategic transformations for our business, mainly focused on two pillars: decentralization, which means transforming from a media-centric platform to a decentralized content ecosystem, and an all-in AI approach. These two pillars will mutually reinforce each other and currently drive a flywheel effect across the number of creators, the volume of content, the user base and potentially revenue performance. Premium content still remains the core of our business. We believe AI will significantly lower production costs for premium content, shorten production cycles and potentially enable production and visual effects that were previously difficult to achieve in live action. On decentralization, we're mostly focusing on our iQIYI ID, which is the iQIYI Creator Center, and we have seen positive initial progress: the number of creators and content upload volumes are trending well. AI adoption is progressing across our core content categories and with initial breakthroughs achieved, both in projects in production and launched titles. In the future, we expect a greater scale of content to be released next year. Over the long term, we believe decentralization and all-in AI will structurally improve our content cost, revenue quality, profitability and cash flow.
Your next question comes from Lincoln Kong with Goldman Sachs.
My question is about iQIYI's overall AIGC strategy and how you plan across each content category.
First of all, we believe AI reduces the basic costs and barriers to production, but it doesn't lower the bar for creativity and judgment. We leverage AI to optimize the economics of content production while reinforcing our core moat, which is storytelling and aesthetic judgment, emotional expression and also digital language. Our goal is to advance on both fronts: premium content quality and scaled content supply. Strategically, we'll prioritize core long-form video while accommodating micro-dramas and micro-animations. We use a revenue-sharing model to improve capital turnover. By category and based on the pace of AI adoption at scale: For micro-dramas, we're seeing rapid adoption with AIGC as the primary source of supply. We primarily use a revenue-sharing model and leverage algorithm recommendations and decentralized operations to deliver a diversified, rapidly refreshed and scaled content supply.
For micro animation, these are AI-native content, so AIGC will serve as the primary supply. For animation and children's content, these have mature CG industrialization and are a good fit; we are seeing rapid AI adoption and our pipeline is expanding. Next year, we will release more AIGC titles to serve niche audiences and broaden stable supply. For short-form dramas and internet feature films, these are medium in production complexity and volume and are lighter compared to long-form content. We are actively adopting AI, focusing on genres like fantasy, supernatural and adventure to widen our genre mix. Some titles have already launched and we will accelerate at-scale releases while balancing cost efficiency and content diversity. So far, we have released 16 AIGC short-form dramas under a revenue-sharing model, along with several internet feature films. For long-form dramas and theatrical films, which carry the highest emotional and artistic value, adoption of AI at scale will be slower. For this content, we will focus on live action, put quality first, and use AI to support production and reduce cost.
Your next question comes from Vicky Wei with Citi.
In the context of the AI era and the ongoing shift towards decentralization, how do you view iQIYI's core competitiveness? And what kind of value does iQIYI offer to content creators?
We believe that in the AI era, video industry competition centers on end-to-end capabilities, from concept to commercialization. Essentials include the ability to bring together professional talent, generate compelling ideas, run industrialized production, have a comprehensive understanding of content review and compliance, deliver effective content distribution and drive diversified monetization. These are the four moats iQIYI has built over the past decade. Our value proposition to creators targets three areas: helping them be seen, generate income and gain recognition. First, iQIYI has a major share of video entertainment audiences, so creators have greater opportunities to be seen on the platform. Second, iQIYI has deep expertise in long-form video production and a mature industrialized content production mechanism. Third, iQIYI has massive viewership data, rich IP and licensing resources, and strong ecosystem support.
We have built a seven-pillar creator support system on iQIYI ID: the iQIYI Creator Center, NadouPro (our professional production platform), physical creator hubs offline, training programs, the iQIYI Nadou and AIGC Venture Summit to provide fund support, the iQIYI AI Theater for benchmark productions, and a dedicated creator customer service. On August 20 in Beijing, we will host the iQIYI Creator Conference, featuring in-depth discussions on content ecosystem development, frontier AI opportunities and creator empowerment.
Your next question comes from an analyst with Guangfa Securities.
I want to know about the latest development in overseas business and how the operational experience from major markets like Thailand can be replicated in other markets?
Our overseas business maintained rapid growth in Q2 with overall membership revenue growing 40% year-over-year, and we remain profitable on a managerial accounting basis. Thailand is the market where we entered early and where our operating model is relatively mature; it still delivered solid year-over-year growth in Q2, with steady top-line growth and continued profitability improvement in the quarter. In new markets such as Brazil and Mexico, we saw membership revenue increase 215% and 150% year-over-year, respectively. We categorize our overseas markets into mature, growth and potential markets: mature markets aim for stable profitability; growth markets focus on accelerated revenue with disciplined investments. Thailand serves as our proving ground. What we have validated is a set of reusable operating capabilities using C-drama as the foundation and sustained marketing to amplify the influence of Chinese content, expanding local content supply and tailoring content to local audiences.
We are also partnering with local carriers, platforms and payment channels to scale the membership base. We leverage AI to improve translation, distribution and production efficiency. Because content preferences and collaboration channel structures differ by market, we will replicate the underlying capabilities while local teams make targeted adaptations—for example, applying Thailand's operating capabilities to other markets. Our strategy is not to chase country counts; we are guided by unit economics and operating contribution, and we will expand into new markets after validating revenue quality and profit-generating capabilities.
There are no further phone questions at this time. I'll now hand back to the company for closing remarks.
Thank you, everyone, for joining the call today. If you have further questions, do not hesitate to contact us. Thank you, and see you next quarter.
That does conclude our conference for today. Thank you for participating. You may now disconnect.