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iQIYI, Inc. IPO Summary (March 2018)

Core Content

iQIYI, Inc. launched an Initial Public Offering (IPO) on NASDAQ with the ticker symbol IQ. The offering included 125 million American Depositary Shares (ADSs) and 875 million Class A shares, with 100% primary issuance. The IPO was priced between $17.00 and $19.00 per ADS, with the expected pricing date set for the week of March 26, 2018. The proceeds from the offering were intended for content acquisition and production, research and development, working capital, and other general corporate purposes.

The IPO was subject to an 180-day lock-up period, and the joint bookrunners were Goldman Sachs (Asia) L.L.C., Credit Suisse, and BofA Merrill Lynch, with co-managers including China Renaissance, Citigroup, and UBS Investment Bank.

Investment Highlights

iQIYI is positioned as a leading online streaming platform in China, with a strong user base and diverse content offerings. The company has demonstrated its ability to monetize content through multiple channels, including:

• Original Content: Producing high-quality original titles.
• Partner Generated Content (PGC): Utilizing a revenue-sharing mechanism.
• User Generated Content (UGC): Allowing users to upload content freely.

iQIYI has also developed a robust ecosystem of content partners, leveraging its distribution and monetization capabilities to provide optimal returns on investment. The company has introduced innovative advertising solutions, including pre-video, pop-up, and in-feed advertisements, as well as content-integrated and unskippable ads for subscribing members.

Business Model and User Engagement

iQIYI's business model is centered around the ability to monetize a single IP (intellectual property) in multiple ways. The platform's unique features include:

• Social Engagement Tools: Features like iQIYI Paopao, which allows users to interact with content through feeds, group chats, and comment sections.
• User Stickiness: Enhanced by features such as rolling on-screen commentary feeds and concurrent viewing rooms.
• AI and Big Data: Used for content recommendation, user behavior analysis, and advertising optimization, improving the overall user experience and content performance.

Market Position and Growth Strategies

iQIYI is the market leader in both mobile and PC platforms in China, with a massive and highly engaged user base. The company's growth strategies focus on:

• Original Content: Recruiting top talents and producing high-quality content.
• Technological Innovations: Leveraging AI and big data for content production, user experience, and advertising.
• Content Ecosystem Expansion: Expanding long-tail content coverage and developing new media formats.
• User Base Growth: Increasing attractiveness to different age groups and personalizing the user experience.
• Monetization Diversification: Enhancing paying user penetration, establishing a multi-layered system, and expanding advertising and other monetization channels.

Financial Highlights

iQIYI has shown rapid and diversified revenue growth, with significant improvements in efficiency and cost management. Key financial metrics include:

• Revenue Per Mobile DAU: Increased year-on-year, reflecting the company's ability to generate revenue from its active users.
• Revenue Per Thousand Viewed Hours: Demonstrates the effectiveness of content monetization.
• Cost of Revenues: Despite rising content costs, the overall cost of revenues as a percentage of total revenue declined from 2015 to 2017 due to efficiency improvements in bandwidth and other costs.
• Operating Expenses: The company has strong operating leverage, contributing to improved margins alongside revenue growth.

Corporate Culture and Technology

iQIYI combines the DNA of engineers and creatives, creating a unique corporate culture that drives innovation and content quality. The company's technology stack includes:

• AI and Big Data: For content recommendation, user profiling, and advertising optimization.
• Cloud Computing: Enhancing the scalability and performance of its services.
• Advanced Video Technologies: Such as video fingerprinting, intelligent encoding, adaptive bitrate streaming, and product placement techniques.

Conclusion

iQIYI, Inc. is a market leader in China's online entertainment industry, with a massive and engaged user base, a diversified content ecosystem, and a strong financial performance. Its innovative use of AI and big data, combined with a robust business model and visionary management team, positions it as a must-own stock for investors looking to capitalize on the growing online entertainment market.