Thank you for standing by. Welcome to the iQIYI First Quarter 2023 Earnings Conference Call. All participants are in the listen-only mode. There will be a presentation followed by a question-and-answer session. If you wish to ask a question, you will need to press the star key followed by the number one on your telephone keypad. I would now like to hand the conference over to Chang You. Please go ahead.
Thank you, operator. Hello, everyone, thank you for joining iQIYI First Quarter 2023 Earnings Conference Call. The company's results were released today and 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. Jun Wang, our CFO; 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. 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. 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 statements except as required under applicable law. With that, I will now turn the call over to Mr. Gong. Please go ahead.
Hello, everyone. We started developing an opportunity with an exceptional knowledge, a strong first quarter entering a new chapter of high-quality growth. Our content live view once again demonstrated its power. The exceptional iQIYI original drove financial performance and the mix share and the market share reaching new high. To be specific, iQIYI maintained its dominant leading position in drama, reaching new high in market share. Our long-standing original content strategy bore fruit once again. The Knockout become the best-performing driver in our history. In Q1, original content continued to be the main driver of new related and revenue performance, and further informed the brand perception that iQIYI is a blockbuster powerhouse, and significantly improved the subscriber sentiment. Both total revenue and membership services revenue peaked quarterly all-time high. Total revenues accounted double digits growth both annually and sequentially.
In particular, the whole membership services revenue reached a new high of 24% annually and 17% sequentially. High-quality original content drove robust growth in subscriber base. 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 170 million, which reflects the usual seasonality following the Chinese New Year, and it's our best-ever half of Q1 performance. 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.
As we mentioned last quarter, we believe these recent solid results are just the start of our 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 high quality popular original content is our core competence, which is difficult to surpass in the short run. We will continue to evolve to secure our industry leading position in the long run. 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 includes iQIYI Live and Suike. Our early-stage businesses include our overseas business and the cloud cinema business. 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 high 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. Sequentially, net addition of over 17 million, marking the second consecutive quarter with a net addition of over 10 million, ARM with RMB 14.3 in Q1, up 1% sequentially. I'd like to iterate that the goal of membership business is maximizing user experience and in return, driving and optimizing 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 allow us to drive continuous improvement in both membership revenue and user experience. 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 portion of annual subscribers increased significantly year-over-year, whereas the lifetime value and the long-term retention rates also improved. In addition, our membership product reached even broader user cohorts in Q1. We saw strong growth from both subscribers with large screen privilege and iQIYI Live, and the supported basic subscription package, which targets differentiated user demographics. 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 drove a number of records and is the best-performing drama, which generated the highest membership revenue during the new release window. Dramas such as Change a Life , Love is Sweet , Day and Night, Under the Microscope, and Road Home, were all well-received by users.
Second, we continue to refine our membership business operations, increasing members' value presentation with enhanced benefits. For example, we improved subscribers' conversion and monetization efficiency in the VIP user analytics, the content and scenario-based marketing initiatives and in-depth research into user profile projects. We upgraded our membership center, introducing various high-quality benefits, which drove a significant increase in member benefits 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. Moving on to content. During the quarter, our content methodology remained highly effective, and our brand image as diversified, and our high-quality premium content portfolio reached a new high. Not only our market share of drama reached a new high, we remained number one in terms of effective lead reviews for both overall drama and exclusive drama categories for the fifth consecutive quarter. 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 a new high.
As the best performing drama in iQIYI history, The Knockout was a true magnet that brought viewers across multiple key metrics and generated significant social buzz. Meanwhile, iQIYI originals have become a major source of content supply for domestic TV networks, including CCTV and provincial and other 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 and variety TV stations, including The Knockout, Every Day and Night, and Miles to Go. Also, volume and revenue of distributed content reached a record high. The Knockout also become the highest-rated show of the past three years on the major domestic drama channel, CCTV-8. 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 offering, namely, optimize the content production mechanism, a 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 offering. For content production, we gradually improve our in-the-spotlight visual 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 repeat. For content management mechanism, we have established an efficient and comprehensive mechanism running through the full process, from product incubation to assessment, production, promotion, operation, and distribution.
For content production tools, we built in-house developed system to support in-the-spotlight visual 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. With respect to industry talent, we have a compelling creator culture and a talent cultivation mechanism that highly valued and appreciated by in-house talent and industry content partners. Our approach is reflected in two aspects.
First, in addition to providing competitive economic incentives, we give our creators full creative freedom, allowing 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.
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 of Dust, Our Missed Youth, and The Ingenious One , Yun Xiang Zhuan , have generated some word of mouth. Also starting from Q2, a number of key company dramas will be released, including Story of Kunning Palace, The Lotus Casebook, Back from the Brink, and Love You Seven Times. A diverse lineup of dramas in other categories will also be released. A number of original variety shows will also be launched in Q2, including The returning season of gift shows and the debut of new titles. In addition to the already held Wonderland , HAHAHAHA, Yes, I Do 4, The Detectives' Adventures.
Please also anticipate the launch of 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 advertising market. For Q2, please also anticipate to see new releases in other categories, including original children cartoon, Food Panda, Natsume's Book of Friends and the Wolves , and the original animation, The Guardian Legend , and the IOK. Moving on to advertising. We are pleased to see that advertising revenue reached RMB 104 billion in Q1, up 5% year-over-year. The performance ad revenue grew 75% annually, and its re-revenue contribution reached a new high, totally high. We successfully acquired a high share of advertising budget from key industries, including internet services, e-commerce and make full use of ad slots to effectively improve monetization.
In addition, we optimized our algorithm to strengthen our targeting and improve ad effectiveness. For brand ad, Q1 was soft due to typical seasonality. The year-over-year decline was due to their relative high base in Q1 last year, the ad market expansion was now impacted by the pandemic lockdown in Shanghai, which is a new 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. The launch of number of variety shows in Q2 was likely to drive the recovery of the brand ad business. We are carefully optimistic towards the overall brand advertising market this year. Consumption is still recovering in the first half of the year, and we expect to see further recovery 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 factors, we are optimistic about the FMCG sector, which includes food and beverage, travel, domestic cosmetic brands, smart home appliance, and healthcare. Moving on to technology and product. Technical innovation is one of our core value, which is critical in driving video industrialization and improve 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 number by 1/3 . The iQIYI visual production management system is a data-driven and high 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 decision-making and efficient monitoring process. Management can utilize these tools to monitor production process, ROI, and use of funds, and manage the overall production in real time. We continually 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 features for elderly and disabled. We upgraded iQIYI's semantic search capability to better understand user search intentions. The search by character feature launched in Q1 helps user quickly find videos based on character, providing a highly efficient way to search for videos.
We also actively exploring how generated AI application built upon large language model can improve content production and promotion efficiency in the long-form video industry. Our internal assessment indicates that generated AI technology can be implemented in multiple business scenarios, including training, between learning, script brainstorming, creation, and review processes. We have initiated the integration of the generated AI technology into our intelligent production system. We expect that the resulting large language model in part intelligent production system will achieve higher performance and better outcomes. By combining large language model 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 emails 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 for use in comic and animation production processes. Next, I'd like to discuss the progress of iQIYI Lite and our overseas business. In Q1, iQIYI maintained high-quality growth and once again recorded operating profits. For the paid basic subscription package, the number of subscribers grew by over 70% sequentially, and the revenue grew by over 80% sequentially. For the overseas business, driven by the outstanding performance of the 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 inflow of original Chinese drama continued to grow, with revenue growth of 54% annually.
On top, the top viewership ranking in multiple markets in Southeast Asia and North America are generating outstanding word of mouth and a huge social buzz. Coming into Q2, we have a solid pipeline of premium content, including key licensed dramas and original Chinese dramas, which will drive the growth in both subscribers number and revenue. Q1 represents our solid first step into the new phase of high-quality growth.
After certain years of development, our industry-leading brand influence is deeply embedded in the mindset of users and industry peers. We are confident about the future prospects of the industry. As a market leader, our business has strong resilience and promising growth potential. We treasure the trust and the support of stakeholders, and we will keep pushing ourselves to unleash more potential and achieve high-quality growth over the long term. Now, let me pass to Jun to go through our financial performance.
Thank you, Mr. Gong. Hello, everyone. Q1 was another record-setting quarter for us at iQIYI . 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. To be more specific, we booked RMB 8.3 billion in total revenues, hitting quarterly all-time high of 15% annually and 10% sequentially. Membership services revenue continues 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 company distribution revenue up by 5% and 16% respectively on annual basis. Moving on to the cost and expenses.
Our cost of revenue increased by 10% sequentially, along which the accounting cost increased by 7% sequentially. We launched a more diversified premium content, original content in the first quarter, as Q1 is a typical high season with Chinese New Year holiday. 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. For Q1, we continue 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 $1.1 billion through follow-on and convertible note offerings.
We also repurchased approximately $340 million principal amount of the convertible notes due 2026. At the end of Q1, the company had cash equivalent, restricted cash, short-term investment, and long-term restricted cash, included in the prepayment and other assets of RMB 6.3 billion in total. This RMB 6.3 billion cash balance does not include the payment of around $1.2 billion to the paying agent to meet the company's repurchase obligation on April 1st, 2023 for the convertible notes due 2025, which was classified as prepayment and other assets on the balance sheet. The repurchase has been completed in April 2023. 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. For detailed financial data for the first quarter, please refer to our press release on our web, IR website. Now we are open the floor for Q&A.
Thank you. If you wish to ask a question, please press star one on your telephone and wait for your name to be announced. If you wish to cancel your request, please press star two. If you are on a speakerphone, please pick up the handset to ask your question. Your first question comes from Xueqing Zhang from CICC. Please go ahead.
Hey. [Foreign language]
I would like to invite our CCO, Xiaohui, to answer the content-related question.
第 三 呢 就 是 从 开 机 量 而 言 比 去 年 会 有 所 提 升 来 满 足 我 们 未 来 对 头 部 项 目 的 获 取 和 排 播 的 规 划 的 需 求.
For this year and over the midterm, the overall content cost will remain stable with marginal increase. 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 number and portion of high-quality original content will increase in the future.
Third, compared with last year, the number of titles going into production for this year will also increase. In order to meet the demand of head premium content inventory and the launch schedule.
从 Q2 开始 呢 我们的 各种 内容 品类的 丰富 多样的 优质 内容 将 继续 登场, 其中 包括 在 剧集 方面 古装 大剧 将 陆续 开始 跟 我们的 观众 见面了. 包括 刚才 也 提到了, 包括 等. 还有 一些 当代 剧, 不完美受害人, 你好生活 等 都 也 将 和 观众 见面.
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, Bright Eyes in the Dark, As Husband as Wife, We are Criminal Police et cetera.
在 综 艺 方 面 Q2 将 迎 来 自 制 综 艺 的 强 势 回 归 具 有 影 响 力 的 综 艺 带 的 项 目 也 有 全 新 创 新 的 一 些 节 目 。
For variety shows, Q2 will mark a strong return of our original variety shows, including both returning seasons of hit shows and the debuts of new titles.
呃 详 细 的 片 单 我 们 在 iQIYI 世 界 大 会 上 已 经 公 布 了 呃 也 供 大 家 参 考 。
Investors may refer to the detailed content pipeline list we just released last week during our iQIYI World Conference for more detail.
谢 谢.
Thank you.
好 的 。 大 家 好 我 是 汪 俊 。 刚 才 那 个 记 者 问 到 从 财 务 角 度 来 讲 这 个 解 读 。 我 想 这 个 回 应 一 下 辉 才 刚 才 说 的 这 个 在 整 体 内 容 投 入 将 稳 中 求 升 这 个 稳 中 求 升 其 实 是 应 该 有 2 个 方 向 的 这 个 解 读 。
I will add on to what Xiaohui just mentioned and explain the finance perspective. He mentioned that content investment for content investment and content cost from the financial perspective, and then we believe for this aspect, it will be remain stable with margin increases.
对 。 第 一 个 这 个 稳 中 求 升 呢 指 的 是 在 过 去 的 一 年 里 面 包 括 在 二 三 年 的 第 一 季 度 我 们 都 看 到 我 们 的 自 制 剧 的 内 容 它 所 占 的 这 个 播 出 的 比 例 是 一 直 在 增 加 的 它 也 是 我 们 本 身 高 质 量 增 长 的 最 主 要 的 驱 动 力 。 这 个 趋 势 本 身 将 会 继 续 保 持 但 因 为 我 们 的 自 制 剧 现 在 已 经 在 相 当 高 ， 相 当 高 的 比 例 里 面 所 以 我 们 预 期 它 的 占 比 在 播 出 去 的 这 个 占 比 里 面 将 会 是 稳 定 的 。
Over the past year, also including the Q1 in 2023, we can see the portion of our original content has been increasing steadily, and it's been the main driver of our high-quality growth over the past period. Right now, because of the original content, the proportion is relatively at a high percentage. We anticipate going forward, the percentage of this will be relatively stable.
第 二 个 稳 中 求 升 的 概 念 是 指 的 是 因 为 我 们 自 制 剧 的 高 质 量 的 保 证 在 过 去 我 们 完 成 了 比 较 系 统 性 的 有 规 律 的 一 个 排 播 的 计 划 现 在 我 们 对 于 新 剧 的 开 机 的 投 入 可 以 按 照 我 们 的 排 播 计 划 进 行 比 较 顺 利 的 对 接. 如 果 不 是 一 一 对 应 的 话 这 就 意 味 着 我 们 从 生 产 到 播 出 有 了 一 个 一 体 化 这 样 使 得 我 们 整 体 对 于 资 金 的 这 个 使 用 也 是 会 进 入 到 一 个 非 常 稳 定 的 状 态 只 有 我 们 新 剧 的 开 机 和 我 们 这 个 播 出 会 比 较 同 步.
Okay. For our original content, especially now it's entering into a very high-quality stage, and then we have defined a very systematic content launch schedule. Because of this, we can launch the content more at ease and more on our own pace. For now, we have a full system from producing the original content to broadcasting. This is a very systematic programmatic approach that we're taking in managing our original content. Our funding is relatively stable, and our need for capital is relatively stable as well.
从 财 务 角 度 来 讲 的 话 我 们 预 计 应 该 看 到 的 是 对 于 这 2 个 良 好 趋 势 的 继 续 保 持 。
From the financial aspect, we anticipate to see the continuous performance of the above-mentioned two points going forward. Thank you.
Thank you. Your next question comes from Lincoln Kong from Goldman Sachs. Please go ahead.
哎 好 ， 谢 谢 您 接 受 我 的 问 题 啊 。 呃 ， 那 我 的 问 题 可 能 是 想 关 于 竞 争 这 边 ， 啊 ， 可 不 可 以 请 教 一 下 ， 就 说 现 在 整 个 市 场 的 整 个 竞 争 格 局 啊 ， 有 没 有 什 么 样 的 变 化 ？ 那 么 在 未 来 两 三 年 ， 我 们 行 业 的 其 他 的 这 个 player， 我 们 是 否 会 担 心 大 家 会 可 能 为 了 获 取 更 高 的 市 场 份 额 而 加 大 啊 ， 也 这 方 面 的 投 入 ， 那 爱 奇 艺 啊 在 此 是 啊 如 何 去 保 持 自 己 的 这 个 竞 争 优 势 ？ 啊 ， 那 我 来 翻 译 一 下 。Um, so thank you very much for taking my question.
The question is about the competition. How do we see the competition landscape has changed or evolved in the current market? Over the next two to three years, will we expect any of the other peers will increase their investment in order to grab more market share in the space? How do iQIYI can maintain the competitive edge in the overall industry? Thank you.
好 ， 谢 谢 。 我 是 龚 宇 ， 我 来 回 答 这 个 问 题 吧 。 嗯 ， 就 是 到 ， 到 ， 到 目 前 为 止 啊 ， 爱 奇 艺 在 市 场 份 额 上 已 经 保 持 了 很 多 个 季 度 的 领 先 地 位 。 那 么 现 在 的 这 个 呃 ， 市 场 已 经 脱 离 开 以 前 跑 马 圈 地 ， 铺 放 式 的 增 长 的 这 个 阶 段 ， 现 在 全 行 业 还 需 要 增 长 ， 但 是 也 是 一 个 高 质 量 增 长 的 一 个 诉 求 ， 也 就 是 不 能 烧 钱 ， 也 就 是 既 要 增 长 又 要 利 润 ， 大 家 ， 大 家 的 一 个 共 识 ， 啊 这 是 目 前 市 场 的 现 状 。
We have been maintaining our market leadership for the past period. Right now we think the entire online video industry has gone through a pretty structural change over the past period. The irrational investment style and the variety of growth is no longer applicable. Our goal is to pursue profitability and high quality growth. This is also the consensus of the entire industry. We all think it's very key indicator.
iQIYI 刚刚 过了 13岁 的 生日。在 过去 13 年 中，iQIYI 始终 不是 这个 资金 最 雄厚 的 一家 公司，我们 把 竞争 的 一个 重点 放在 了 这个 内容 自制 上。到 截止 也是 在 全 行业 中，在 内容 自制 的 这个 领域，我们 是 最 强 的，已经 构筑 了 一定 程度 的 行业 壁垒。我们 将 继续 加大 这种 优势，让 我们 在 竞争 中 去 这个 确有更多 的 这种 人，这种 确定性 的，这种 优势。
In our 13 years of history, we have never been the most deep pocket player in the market. We actually put more focus into original content, and we have been seeing very promising results and have been seeing excellent results on this as we have maintained a market, definitely market leadership on this front and have built very concrete competitive strength on this area. Going forward, we will continue to enforce our competitive strength to ensure a market leadership over the long run.
嗯 。 在 内 容 自 制 之 外 ， 呃 ， 我 们 还 用 这 个 科 技 创 新 ， 啊 让 我 们 的 内 容 ， 呃 ， 从 这 个 一 开 始 的 这 个 选 题 啊 ， 孵 化 到 最 终 的 上 线 、 宣 传 、 货 币 化 等 等 ， 呃 ， 都 保 持 这 种 可 预 测 性 、 稳 定 性 ， 然 后 提 高 这 个 呃 ， 爆 款 的 认 知 概 率 。 呃 ， 然 后 同 时 也 应 用 最 近 的 AIGC 技 术 ， 就 是 咱 们 从 啊 应 用 在 内 容 创 作 方 面 ， 相 信 这 些 技 术 都 可 以 为 ， 为 爱 奇 艺 的 自 制 内 容 ， 呃 ， 提 高 ， 在 提 高 质 量 上 和 降 低 成 本 方 面 发 挥 很 大 的 价 值 。 谢 谢 。
Thank you. We also utilize technology to improve our overall content production process. For example, from the screening process to incubation, to production to actually content launch and an entire cycle of the original production can be covered through our technology driven tools. Using these tools, we can largely manage and also forecast our original content in order to secure very stable supply of our original content and also to increase the likelihood of blockbuster content going forward. In the meantime, we will also utilize AIGC to improve our production efficiency and to improve our overall original content quality to also decrease the content cost of that.
Going forward, these are the tools and technology that we will use to enforce our market leadership position. Thank you.
Great. Thank you.
Thank you. Your next question comes from Daniel Chen with JP Morgan. Please go ahead.
谢 谢 ， 谢 谢 管 理 层 给 我 机 会 问 问 题 。 我 想 问 一 个 关 于 会 员 这 块 的 问 题 ， 我 们 怎 么 去 展 望 这 个 二 季 度 还 有 更 加 长 时 期 的 一 个 会 员 的 规 模 ， 还 有 整 体 的 会 员 业 务 的 增 长 。 然 后 我 们 能 不 能 谈 一 谈 今 年 的 整 体 的 会 员 业 务 的 主 要 策 略 吗 ？ 谢 谢 。 My question is related to the membership business. Could management provide some color on the outlook of the subscriber number in the second quarter and also longer term. What, how do you think about the overall growth for the membership service in this year and longer term? What's our major strategy for membership business in 2023? Thank you.
大 家 好 ， 我 是 Youqiao Duan， 我 来 回 答 这 个 问 题 。 今 年 的 第 一 季 度 ， 在 我 们 的 自 制 内 容 的 强 劲 驱 动 下 ， 会 员 业 务 的 收 入 和 会 员 的 规 模 都 双 双 创 造 了 历 史 的 最 高 纪 录 。
Our Senior Vice President of Membership Business, Mr. Duan is answering this question. For Q1, driven by strong original content, the Q1 membership services revenue and subscriber base both hit record high.
呃 ， 我 们 预 计 第 二 季 度 ， 呃 会 员 收 入 跟 会 员 规 模 的 同 比 呢 依 旧 ， 依 旧 会 有 良 好 的 增 长 。 呃 ， 我 们 也 预 期 今 年 的 第 二 季 度 会 成 为 爱 奇 艺 历 史 上 会 员 收 入 和 会 员 规 模 表 现 ， 呃 最 好 的 季 度 。
It is expected that the Q2 membership services revenue and subscriber base will still have good year-on-year growth. We have estimated that for Q2 the subbase and the revenue will be the best performance second quarter in our history.
因 为 春 节 假 期 后 的 季 节 性 规 律 , 我 们 预 计 今 年 Q2 的 会 员 规 模 和 收 入 呢 , 会 有 一 定 的 程 度 回 落 .
From the quarter-on-quarter perspective, it is expected that the subbase and revenue Q2 will have some sequential dip, mainly reflecting the seasonal pattern after the Chinese New Year holiday.
但 是 整 体 上 呢 ， 我 们 依 旧 维 持 ， 呃 对 全 年 整 体 上 的 会 员 规 模 ， 还 有 会 员 收 入 ， 呃 保 持 乐 观 的 预 期 。 原 因 呢 ， 主 要 有 下 面 两 个 方 面 。
Overall, we remain optimistic about the subscriber base and the revenue outlook for this year, mainly because of the two factors I'll be mentioning.
首 先 呢 ， 我 们 对 今 年 后 续 ， 尤 其 是 最 重 要 的 暑 期 的 重 要 的 这 个 档 期 的 我 们 的 ， 内 容 的 储 备 ， 还 有 整 体 的 排 播 非 常 有 信 心 。 迄 今 为 止 ， 我 们 已 经 ， 积 累 了 非 常 高 效 的 内 容 生 产 机 制 ， 强 大 的 运 营 能 力 ， 以 及 行 业 最 优 秀 的 人 才 储 备 和 领 先 的 技 术 产 品 。 那 么 我 们 相 信 呢 ， 这 些 都 会 为 今 年 整 体 上 我 们 的 头 部 内 容 产 出 比 去 年 有 稳 定 增 长 和 提 升 ， 提 供 了 非 常 好 的 推 动 和 促 进 作 用 。
The first reason is we are still very confident about the content pipeline and the content launch schedule for this year, especially during major windows such as summer vacation. Our highly efficient content production mechanism, strong operating and technical capability, and also the top talent will empower us to steadily grow the number of high quality content compared to last year.
呃 另 外 呢 ， 呃 我 们 的 会 员 结 构 整 体 上 更 加 优 化 了 。 呃 也 第 一 呢 ， 我 们 年 卡 会 员 的 占 比 呢 ， 有 了 显 著 的 提 升 。 呃 虽 然 年 卡 短 期 对 整 个 我 们 的 ARM 的 带 动 作 用 呢 不 是 很 明 显 ， 但 是 长 期 来 看 ， 对 整 体 会 员 业 务 的 健 康 发 展 有 非 常 重 要 的 促 进 作 用 ， 呃 不 仅 可 以 有 效 促 进 ， 呃 整 体 的 会 员 收 入 的 增 长 ， 同 时 呢 还 能 提 升 我 们 现 金 流 的 健 康 度 。
The second factor is we are seeing the proportion of annual subscribers increased significantly year- on- year. Although it might not have the short term uplift effect on ARM, the long term benefit is significant. It represents longer and closer relationship with our subscribers, this will drive the annual, and also improve the annual revenue performance and also improve the cash flow healthiness.
呃 第 二 点 呢 ， 就 是 整 体 上 我 们 会 员 的 各 个 卡 种 的 LTV， 还 有 长 期 的 留 存 率 呢 ， 现 在 都 是 在 持 续 提 升 。
The second point is the lifetime value and the long term retention rate of our various membership packages have also increased.
呃 第 三 呢 ， 就 是 我 们 的 大 屏 会 员 ， 也 就 是 奇 异 果 VIP 会 员 和 极 度 版 的 基 础 会 员 呢 ， 最 近 增 长 都 非 常 良 好 。
Also that we saw strong growth from both subscribers with large screen privileges and also iQIYI Lite ad supported basic subscriber packages.
呃 今 年 整 体 上 爱 奇 艺 会 员 的 主 要 策 略 呢 ， 是 实 现 会 员 业 务 的 高 质 量 增 长 。 那 么 我 们 希 望 呢 ， 在 会 员 用 户 体 验 提 升 的 驱 动 下 呢 ， 能 够 持 续 提 升 呃 ， 会 员 的 规 模 ，LTV 还 有 ARM。 谢 谢 大 家 。
Okay. The main strategy for our membership business this year is to reach high quality growth, which means maximizing user experience and in return strengthen our subscriber base, LTV and also ARM. Thank you.
Thank you. The next question comes from Alicia Yap with Citigroup. Please go ahead.
Hi, thank you. 管理 层 晚 上 好, 谢 谢 接 受 我 的 提 问, 恭 喜 这 个 强 劲 的 业 绩. 我 的 问 题 是 关 于 广 告 是 吧, 今 年 其 实 广 这 个 细 分 行 业 的 一 个 展 望, 能 请 管 理 层 帮 我 们 梳 理 一 下 吗? 还 有 就 是 说 品 牌 广 告 跟 效 果 广 告 各 自 分 别 的 一 些 趋 势 是 如 何? 帮 我 自 己 翻 译 一 下.
Can management share with us, what is your view of brand advertising outlook this year? What is the ad demand for each major sub-vertical industry looks like? In addition, wondering if you have seen any meaningful difference in terms of demand sentiment between brand ads and performance ads. Thank you.
好 ， 我 先 来 ， 我 来 回 答 这 个 问 题 。 那 个 分 成 品 牌 广 告 跟 效 果 广 告 分 开 说 吧 。 品 牌 广 告 和 这 个 整 个 国 家 的 经 济 的 发 展 趋 势 相 关 联 的 。 随 着 这 个 疫 情 防 控 的 放 开 ， 中 国 的 经 济 也 在 逐 渐 地 恢 复 ， 但 是 在 反 映 到 广 告 市 场 有 一 个 滞 后 ， 这 个 滞 后 我 估 计 有 1 到 2 个 季 度 。 今 年 春 节 以 后 ， 四 月 份 ， 三 月 下 旬 ， 四 月 份 ， 已 经 能 感 觉 到 品 牌 广 告 市 场 开 始 有 所 回 升 。 但 是 我 们 也 抱 着 谨 慎 的 态 度 ， 真 正 的 明 显 比 例 的 回 升 ， 可 能 得 到 下 半 年 了 。
I'll talk about brand advertising and performance ads separately. For brand advertising, the performance of that is very closely correlated with the macro economic development. We are seeing the overall ad market will recover with gradual recovery of China's economy, especially the post-COVID period. The reflection in the advertising market will lag by one or two quarters. Actually after April, we are seeing a gradual recovery of brand advertising, and we are still very cautiously optimistic about the overall brand advertising market for this year. In the first half of the year, the consumption is still gradually recovering, so we're expect to see more evidence of recovery in the second half of this year.
整 体 上 ， 中 长 期 我 们 看 好 这 个 品 牌 广 告 市 场 的 发 展 。 那 个 iQIYI 在 中 国 互 联 网 行 业 拥 有 这 个 高 质 量 的 用 户 ， 有 1 亿 多 的 付 费 用 户 了 ， 然 后 付 费 能 力 、 消 费 意 愿 都 是 各 个 平 台 中 这 个 用 户 消 费 意 愿 很 强 的 ， 所 以 特 别 对 广 告 主 来 讲 有 很 高 的 价 值 。
Overall, we are very confident, still very confident in the long-term development of the brand advertising market. 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.
从 细 分 行 业 来 看 ， 那 么 快 消 、 零 售 、 旅 游 、 文 化 娱 乐 、 健 康 ， 指 的 广 义 的 大 健 康 ， 这 几 个 行 业 现 在 看 恢 复 比 较 快.
Looking at the subsectors, the FMCG, retail, travel, entertainment, and also health industry recovered the fastest so far.
二 季 度 是 快 消 品 、 食 品 饮 料 、 日 化 的 投 放 量 比 预 计 同 环 比 都 会 有 正 的 增 长 又 有 网 络 电 商 的 投 放 应 该 有 比 较 明 显 的 这 种 的 增 长 。
As Q2 is the peak season for FMCG, food, and food and beverages, and toiletries. We expect Q2 should have positive growth, both annually and sequentially. At the same time, Q2 also has key marketing campaigns, such as June 18. The ad budget of some e-commerce platforms should also expect to see some increase to some extent.
中 长 期 看 好 行 业 ， 包 括 新 能 源 汽 车 ， 还 有 家 居 行 业 。
We are optimistic about the long-term process of the new energy vehicle sector, and also the home furnishing sector.
再 说 效 果 广 告 ， 今 年 是 效 果 广 告 这 个 逐 渐 恢 复 的 一 年 ， Q2 相 对 来 讲 还 算 比 较 温 和 ， 但 是 iQIYI 的 增 长 比 例 是 肯 定 超 过 行 业 增 长 的 ， 因 为 各 种 方 面 的 优 化 ， 销 售 力 量 的 加 强 而 导 致 的 。 我 们 希 望 在 Q3 、 Q4 迎 来 更 强 劲 的 这 种 增 长 ， 这 个 行 业 ， 我 们 也 从 行 业 更 强 劲 的 增 长 中 获 得 更 大 的 好 处 。
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 to increase our sales efforts. So, our Q1, our quarter performance were actually above the market industry. And also, going looking into the future quarters, we expect to see strong growth in Q3 as well.
从 现 在 看 ， 细 分 行 业 增 长 ， 增 长 比 较 好 的 细 分 行 业 包 括 网 络 服 务 、 游 戏 、 网 游 戏 、 电 商 、 旅 游 、 本 地 生 活 等 。
Overall, the performance ad market is currently showing pretty big budget growth in areas such as online services, game launches, e-commerce, travel, and local lifestyle. Thank you.
Thank you. I'll now hand the conference back to Ms. You for closing remarks. Over to you, ma'am.
Thank you. Please note that the previous discussion on Q2 is forward-looking and only represents our current views based on current data points. I would like to thank again for everyone's participation on the call today. Please do not hesitate to contact us if you have further questions. Thank you everyone. We'll see you next quarter.
Thank you.
Thank you.
Thank you. Bye bye.
Thank you. That does conclude our conference for today. Thank you for participating. You may now disconnect.