iQIYI Inc
NASDAQ:IQ
If you don’t study any companies, you have the same success buying stocks as you do in a poker game if you bet without looking at your cards.
Utilize notes to systematically review your investment decisions. By reflecting on past outcomes, you can discern effective strategies and identify those that underperformed. This continuous feedback loop enables you to adapt and refine your approach, optimizing for future success.
Each note serves as a learning point, offering insights into your decision-making processes. Over time, you'll accumulate a personalized database of knowledge, enhancing your ability to make informed decisions quickly and effectively.
With a comprehensive record of your investment history at your fingertips, you can compare current opportunities against past experiences. This not only bolsters your confidence but also ensures that each decision is grounded in a well-documented rationale.
Do you really want to delete this note?
This action cannot be undone.
| 52 Week Range |
1.95
5.79
|
| Price Target |
|
We'll email you a reminder when the closing price reaches USD.
Choose the stock you wish to monitor with a price alert.
This alert will be permanently deleted.
iQIYI Inc
Earnings Call Analysis
Q3-2023 Analysis
iQIYI Inc
The company reported a solid revenue increase of 7% annually, hitting RMB 8 billion, led by a notable 19% increase in membership services revenue which exceeded RMB 5 billion. A key growth driver for this segment was the Average Revenue Per Member (ARM), which spiked by 12%, showing that users are valuing the content provided enough to pay a premium. The firm's commitment to strengthening its original content offering, a core competitive advantage, is evident from the successful performance of original dramas, accounting for over 68% of key drama launches.
The company experienced a robust 34% annual growth in online advertising revenues, reaching RMB 1.7 billion. This growth was supported by advancements in AI technology, optimizing ad creation, and boosting efficiency. Generative AI, a key technological innovation, is being leveraged across various aspects of production and advertising, improving investment rates by up to 60% in AI-driven campaigns compared to those without AI.
Despite revenue growth, the company managed to reduce content costs by 3% annually to RMB 4.2 billion and operating expenses by 2% annually to RMB 1.4 billion. Non-GAAP operating income surged by 71% annually, demonstrating proactive cost management and strategic allocation of resources for profitability.
With an impressive free cash flow of RMB 826 million, marking positive results for five consecutive quarters, and a strong cash balance of RMB 7.2 billion, the company is in a healthy financial state. This positions the firm to continue driving high-quality growth and to make cautious investments in both core and innovative business segments.
Looking to the future, the company eyes a moderate increase in original content releases while maintaining a focus on high-quality dramas and looking for breakthroughs in other genres. Overseas business, despite earlier setbacks due to COVID-19, is now poised for growth and profitability, with a strategy focused on validating business models, exploiting the popularity of original content, and building a comprehensive ecosystem with global partners.
In alignment with a strategy for high-quality growth, the company plans to foster both revenue and profit, with profit growing at a faster pace. A cautious increase in investment in premium content and innovative technologies such as generative AI is anticipated to augment both the core membership business and advertising performance, potentially leading to new growth pillars in the long-term.
You don't have any saved screeners yet
Thank you for standing by, and welcome to the iQIYI Third Quarter 2023 Earnings Conference Call. There will be a presentation, followed by a question-and-answer session. [Operator Instructions] I would now like to hand the conference over to Chang Yu, Investor Relations Director of iQIYI. Please go ahead.
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. 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. Wnfeng 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. 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.
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. Thank you for joining us today. Our focus of the quarter remains firmly on generating high quality growth are driving strong results in both revenues and profits. 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 result demonstrates the strength of our robust operating leverage occurred by our inception of content, which serves as our core competitive advantage. [indiscernible] is a signature brand for top-tier content. According to elect data, we have been leading the industry in drama viewership share for 7 consecutive counters. Our original dramas remain as a key driver for content supply and the revenue contribution. [indiscernible] are the worse of high-quality titles. Primer were highly acclaimed by users.
Notably, the long-term case book, [indiscernible] was the tenth drama in our history to break the 10,000 popularity index for [indiscernible]. During the quarter, membership services revenue grew by 19% annually, mainly driven by a 12% annual increase in [indiscernible]. 2 key factors contributed to the revenue growth.
Firstly, in part by the higher appeal of our exclusive content. We have reduced the discounts provided for membership purchases will direct and the channel sales. Our content is compelling enough to drive purchasing decisions in its own. Secondly, we have upgraded our member benefits and authorities, resulting in increased well perception among our members and boosting membership retention rate. the enhanced member benefits encompass a wide range of upgrades. For example, optimizing the BOE experience from mobile devices to large screen TV.
Members can now enjoy content in outstanding 4K, 8K and even indulge in our propriety effective [indiscernible] total in dry seller quality audio reshore experience. The audio experience is equally intense with a shift from ordinary stereo sound to the immersive and captivating [indiscernible] industry-leading IQ [indiscernible]. And our member perks don't stop there. We go beyond the online rim, extending our offering to exciting offline experiences such as exclusive concepts.
These upgrades have transformed entertainment, providing users a diversified, personalized and an immersive entertainment experiences. We are very pleased that we see user's appreciation for our content and the way it translates into our growth.
Along membership services, advertising revenue was our second growth driving during the quarter. Our premium content and enhanced marketing capability drove our advertising revenue by 34% annually and 12% sequentially. Both brand and the performance are both annually and sequentially growth. Entering into Q4, we are cautiously monitoring the macro environment impact on the advertising market, where we'll upgrade our marketing capabilities to weather potential challenges as we continue to seek out new growth opportunities in the future.
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. 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 3 components, namely one, subscriber lifetime and the subscriber base, and subscriber lifetime or current key focus in driving the long-term economic value of membership services. In the third quarter, ARM reached RMB 1.54, 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.
First, as we just mentioned, membership purchase decisions are increasingly being made based on content and membership -- and member benefits rather than this cost. Very importantly, our ability instantly and delivering high-quality premium content will be further improved.
Second, our member experience offers compelling value for the money. We will continue enhancing our offering with new vale-add services that increase members, value, perception and the willingness to pay, such as express package concepts and merchandise offers.
Finally, we see significant potential to further upgrade in beating gold members to [indiscernible] and diamond membership tariffs, which command a higher price yet offer more privilege. Our member privilege and benefits have grown pro with high, attractive, and we expect their PR to remain strong.
For example, the [indiscernible] packages is one of the content privilege we have developed to fund members, which enable subscribers to redeem their member points to unlock early access to final episode of [indiscernible]. This model was applied to 2 dramas in the third quarter attracted over 10 million participating members, demonstrating the significant value perception attached to these benefits in line with our strategy to foster deeper connections between our lower number and our premium content, Zoom IP [indiscernible].
Cloud concerts are another important component of membership offering. We held the [indiscernible] Facebook SIM concert, which created immersive excitement. Lastly, we have developed a dedicated e-commerce platform for merchandise related to our IP members, can use a number of points to pay for their schools in full or in part.
As discussed repeatedly, our primary focus is on enhancing member loyalty retention and lifetime value through our membership privilege and the benefits of loyalty program is closely tied to the duration of membership. And we strive to improve the service extreme and value perception, especially for our long-term members. For instance, users hold up to auto [indiscernible] to long-term plans or become premium members with elevated benefits, including faster ultimate [indiscernible] of member points that can be redeemed for content-related products and merchandise. As a result, we observe meaningful year-over-year growth in both the quality and proportion of annual plan subscription in the third quarter.
Moving on to content. Content is our core competitive advantage. [indiscernible] drivers continue to be the main driver in terms of content supply, and the revenue contribution accounted for over 60% of the key drama launched in the third quarter.
For this year, summer season, our drama line of covered, the worst generals such as Asian custom reality and [indiscernible]. The Asian customer detective drama, the [indiscernible] book, become the cost of the summer. It was our 10th drama to break on 10,000 popular in that score. And the drama, same concert. We have generated over 200 [indiscernible] trending search topics and attracted over 320 million lakhs.
We are happy to see the significant long-lasting impact with these areas as it continued to dominate the invite at least even after its eluent. Other headers such as Asian customer suspense series my journey to you in perfect [indiscernible]. So see focus on social issues and suspend serials the last 11th floor, Sensata were all well received by audiences and reflect the quality and the depth of our drama lineup. [indiscernible] to own classic IPs such as the season of the big bond and the housework talent [indiscernible] made a strong comeback.
The big in 3 achieved an outstanding performance in both advertising and membership revenue. We also launched that work innovative new IPs, including our very first variety show and the drama across over as to which [indiscernible] using CTCL.
Our cultural already show Gloria Beijing. And [indiscernible] show a barbecue, which attract a wide variety of users. On a separate note, we are also making good progress in realizing the commercial potential of our premium IPs. Notably, sales of the case book merchandise existed RMB 18 million. We have also introduced merchandise based on our original children's IP spending the full range of children's products. including daily life learning and off-line entertainment.
Turning into Q4 and next year, we are committed to deliver diversified and high quality content on continuous business. We have a highly anticipated slate of drivers. Aside from the already launched hit title such as Long Run of [indiscernible] story of cleaning pallets, Narum and the fallen one walls of HD. We also held a seller drive pipeline to be released. This includes major Asian customer titles, our journey to lot, Indian and the Chinese piloting for [indiscernible], as well as modern days in dramas like Detective China [indiscernible] Season 2, Tania, and lack of flowing Riverside [indiscernible].
Forward any show, our pipeline covers a wide range of SIMs, including our first original physical computation show we never stop and our hit show become a farmer will introduce its first spin offshore, high young farmers. We also have an exciting lineup of children cartoon animation. For Children, we are going to build the second half of [indiscernible] season 3, [indiscernible] season 3 have a brand-new title, Megama. For original animation, the great ruler, Natura and against the [indiscernible] intensity well new actions such as Sidarth beef game, Sincan the comic adaption, magic are set for release.
Moving on to our advertising business. we are delighted to see accelerated recovery during third quarter. Total advertising revenue reached RMB 1.7 billion, up 34% annually and 12% sequentially. Revenue from brand ad recorded double-digit growth, both annually and sequentially driven by several factors, notably, our premium oral content such as big and season 3 and [indiscernible] attracted stronger advertising demand. Advertising budgets allocated towards Werlson drummer increased by 67% and 28% year-on-year, respectively.
Working it down by sector, we saw increased ad budget from food and beverage while sectors like Internet services, transportation and health care also recovered. Revenue from performance ads recorded strong annual revenue growth of over 78%, mainly due to 2 factors: first, targeted and efficient operations gained higher budget from sectors such as Internet services, e-commerce and the games.
Second, the effective use of generative AI-enhanced application and ROI. Looking ahead to Q4, we are cautiously monitoring the overall advertising market. We launched that the consumption segment it takes time to fully bounce back, creating a lagging effect on brand advertising business, never less based on our unparalleled content quality and intensive user profile, we are the platform for advertisers seeking optimal advertising opportunities.
Performance, as we are optimistic on second -- on sectors such as Internet services, e-commerce and the shop drivers. And we will continue to fine-tune our algorithm and leverage generative AI as we enhance ad creation and maximize efficiency. Moving on to technology and products. Our commitment is centered around the fostering technology innovation to empower the entertainment ecosystem, creating value for our users and content creators.
Firstly, we harnessed the part of technology to elevate the entertainment experience for our users. And secondly, we impart our content creators by equipping them with latest tools and resources to improve the quality and the efficiency of their creation. Our focus on laboratory AI to enhance the user experience has yield significant progress. Notably, we have pioneered the use of generative AI in 3 key search categories: [indiscernible] search, plus search and actual search by applying advanced accountant analysis. We are now capable of automatically generating video clips and drama highlights. This cutting-edge technology has been mandate across hundreds of core dramas on our platform, greatly improving search accuracy and the user engagement. User invested to our dramas through AI plant search spend an average of 40% more time viewing the company. One more exciting user experience optimization as an introduction of karaoke mode in the big band suite. This innovative and interactive feature [indiscernible] integrates some lyrics into the on-screen display during the performance sessions, allowing viewers to sing along and creating a more immersive experience with meaningful viewer engagement and the time spent increased by users activating this feature.
In terms of content production and operation, we are promoting the application of generative AI in various user cases during the rapid technology development of radio industry. Now the role of generative AI is involving from now embedded to call pilot made in every phase of wood flow. By leveraging this transformative technology, we are important creators in every aspect of their work from planning and development to production and the promotion of content. This approach not only enhanced efficiency but also unlock new potentials. We are seeing great initial results. For example, we use generative AI producing low-cost, high-quality posters and videos to showcase on content.
We have applied this technology in promoting our key programs such as testing, [indiscernible], the big bank industry [indiscernible]. In Asia, we are expanding the reach and improves of apps by using generative AI. For our business performance in regions outside of Mainland China, our premium content continues to win acclaim from overseas user and understand 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 feed pulp powered by a number of popular titles. The total viewing time for seafarers on our overseas therefore, increased by 23% annually under 33% sequentially in the quarter.
My journey to you [indiscernible] achieve the highest revenue on our overseas platform during a broadcasting period. Mainly, the longer books popularity extended the yard [indiscernible] at the top door our overseas platform in both total video bill and real in time in the third quarter. and remarked #1 in total video views in Southeast Asia, East Asia and the North American market. For the fourth quarter, we will continue to drive high-quality growth in addition to enhancing plan for core operation and channel expansion.
We are dedicated to bolster our content pipeline to capitalize on the strong momentum of Chinese drama will introduce localized drivers in Thailand, Malaysia and Thailand to further expand our influence.
In summary, we have accomplished strong results in the third quarter with other process 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 part of advanced AI technology remains steadfast.
Going into next year, we will culturally increase investments in both our core and innovative business established a solid foundation for sustainable long-term growth. And we pass to Wang Jun to go through our financial performance.
Thanks, Mr. Gong, and hello, everyone. We have delivered strong Q3 results. As you can see, the growth of ARM to drive the growth of the membership services revenue, profit and the free cash flow and our operating leverage led to margin expansion on a year-over-year basis. This demonstrates the deicibility and scalability of our business model. Now let me walk you through the key numbers.
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 adds with performance and show stronger growth momentum. Now moving to the cost.
Our quality cost and expenses remained relatively stable year-over-year. Total cost of revenue was RMB 5.8 billion, up 2% annually. Content costs 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.
Turning to profit and cash flow. 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.
At the end of Q3, the company had cash, cash equivalents, restricted cash, short-term investments and long-term restricted cash included in the prepayments and other assets the total of RMB 7.2 billion.
To conclude, our Q3 results reflect a 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.
[Operator Instructions] Your first question comes from Chung Zeng of CICC.
[Foreign Language] Congratulations on a 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?
Thank you. Youqiao will answer this question.
Yes. Senior VP of Membership business, Duan Youqiao, will answer this question. Please go ahead.
[Foreign Language]
[Interpreted] Yes. For Q3, the ARM exceeded RMB 15 is within our expectations. And then this is because our progress in content quality and also content quality and also member 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 of quality services.
[Foreign Language]
[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 4 aspects.
[Foreign Language]
[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.
[Foreign Language]
[Interpreted] Second, in comparison to other domestic daily consumer goods and similar products abroad, our current prices are relatively low.
[Foreign Language]
[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.
[Interpreted]
[Interpreted] And fourth, the introduction of more member privileges and benefits such as loyalty points, expressed package, cloud performances member exclusive e-commerce items and also IP merchandise will continuously enhance the attractiveness and the long-term value for members.
[Foreign Language]
[Interpreted] All of the above items I just mentioned give us confidence that the ARM will continue to have healthy growth in the future.
[Foreign Language]
[Interpreted] Further, due to our relatively low pricing base, the absolute impact of ARM growth on user procession is relatively small. Where 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.
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. Thank you.
The next question will come from Lincoln Kong of Goldman Sachs.
[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?
[Foreign Language]
[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.
[Foreign Language]
[Interpreted] Okay. Secondly, we will cautiously and appropriate increase investment in core business to promote long-term growth. Specifically, we will reasonably as more investment in top premium content to enhance our core membership business performance in ARM member lifetime and sub base, and also will drive the performance in advertising business.
[Foreign Language]
[Interpreted] Okay. And thirdly, we will continue to explore implementation of innovative technologies centered around generative AI. So there are 2 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.
[Foreign Language]
[Interpreted] And for the other 2, innovative and new growing business such as the overseas business and iQIYI light. If we can maintain the profitability of these 2 businesses, we will, hopefully, to grow the revenue performance for this segment next year.
The next question comes from Daniel Chen of JPMorgan.
[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?
Yes, our Chief Content Officer, Mr. Xiaohui, will answer this question. Please go ahead.
[Foreign Language]
[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.
[Foreign Language]
[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 call the S8+ gradings, continue to produce and supply high-quality content is our #1 goal.
In Q1 of next year, we will launch a new season of Ms. Theater and highly anticipated as grade production, strengthening our competitive advantage and making a strong kickoff for the year. Based on the ITE's popularity index score, we have already seen 4 dramas this year that have exceeded a significant milestone of 10,000 square for this year, and we anticipate the performance for next year will be better than this year.
[Foreign Language]
[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 had expectation that.
In terms of business models, we work for monetization models beyond advertising, membership and IP derivatives, as well as explore more IT development opportunities throughout its life cycle.
[Foreign Language]
[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.
[Foreign Language]
[Interpreted] For TrueView content, we will appropriately increase investments, strengthen the influence of our multi IPs and increase commercially-oriented original content as well as expand PUGC content. A 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.
[Foreign Language]
[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. Thank you.
The next question comes from Thomas Chong of Jefferies.
[Foreign Language] May I ask about our overseas outlook as well as our strategies?
Our Senior Vice President, Xianghua, will answer this question. Thank you.
[Foreign Language]
[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.
[Foreign Language]
[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.
[Foreign Language]
[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 CPP.
[Foreign Language]
[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. This advancement inspired us largely.
[Foreign Language]
[Interpreted] Building on these 3 achievements, we aim to strengthen collaboration with partners around the world using content at the 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. Thank you.
The next question comes from Maggie Ye of CLSA.
[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 I want to learn more about management's perspective on the long-term impact of these technologies.
Sure. Thank you, Maggie. And then we will have Wenfeng, our CTO, to answer this question.
[Foreign Language]
[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 4 major application scenarios, namely tech, image, sound and videos. And this has helped our operators to improve quality, optimize efficiency and reduce costs
[Foreign Language]
[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 many reading from 3 to 4 days to about 1 hour. The accuracy of seen and character breakdown in scrips have also exceeded 90%.
[Foreign Language]
[Interpreted] In the prediction phase, producers have effectively saved on design and production costs by using generative AI tools to generate character sketches and contact posters in the promotion phase high-quality posters and dynamic videos generated AI have been applied in platform operations and off-platform advertising for key projects such as distance and the big battery. .
[Foreign Language]
[Interpreted] In addition to content production, we also utilize AI generated creative tools for effective app 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 generative materials have also experienced a 60% higher rate of investment compared to non-AI materials.
[Foreign Language]
[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. Thank you.
There are no further questions at this time. I'll now hand back to management for closing remarks.
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.
Thank you.
The conference has now concluded. Thank you for attending today's presentation, and you may now disconnect.